'Deficits Don't Matter'

Well, at least some are worrying. When it comes to deficits, the architects of the Bush Administration's economic agenda have largely averted their eyes from a problem conservatives are supposed to care about. Recall how, a decade ago, Newt Gingrich and Republican members of the 104th Congress pledged, in the Contract With America, to pass a series of bills that would restore citizens' faith in their leaders. Topping the list was "The Fiscal Responsibility Act: A balanced budget/tax limitation amendment and a legislative line-item veto to restore fiscal responsibility to an out-of-control Congress."

By 2003, the party that spent the Clinton years singing this tune had turned a projected surplus of $5.6 trillion into a projected deficit of $4 trillion--in two years. As the London Financial Times observed after Bush's second round of tax cuts was passed, this was not conservatism but madness. "On the management of fiscal policy, the lunatics are now in charge of the asylum," the paper commented. "Reason cuts no ice; economic theory is dismissed; and contrary evidence is ignored. But watching the world's economic superpower slowly destroy perhaps the world's most enviable fiscal position is something to behold."

In this regard, at least, the Bush Administration can legitimately claim to be the heirs of Ronald Reagan, whose own supply-side policies led to the crippling deficits of the 1980s. But as Charles Kolb, a Republican who served in the Reagan Administration and as deputy assistant to the first President Bush for domestic policy, noted in an interview, many fiscal conservatives view the circumstances today--with a record number of Americans about to retire and the nation at war--as different. Testifying recently before Congress, Kolb pointed out that, at current trends, government debt will rise to 69 percent of the economy in 2020 and 250 percent in 2040--a level typically associated with developing nations on the verge of bankruptcy.

Kolb's concerns are echoed by Peter Peterson, chairman of the Blackstone Group and Commerce Secretary under Richard Nixon. A graduate of the University of Chicago and a devotee of Milton Friedman, Peterson views Bush's measures not as tax cuts but "deferred tax increases on our children and grandchildren," since at some point future generations will have to foot the bill for the gifts now being lavished on the wealthy. "I'm rather offended that fat cats like me are getting tax cuts which over the long term will only serve to increase taxes on my own children and grandchildren at a time when our entitlement programs are underfunded," says Peterson. Back in the 1960s, he notes, conservatives took liberals to task for their reckless fiscal policies. "LBJ got pilloried [by conservatives] for guns and butter. It's now guns and butter and tax cuts all put together."

Warren Rudman, the former Republican senator from New Hampshire who now co-chairs the Concord Coalition, likewise sees a role reversal under way. Watching the Republican Party drown the country in a sea of debt, and hearing Democrats like John Kerry promise to remedy the situation, Rudman says he feels like he's watching "a version of the movie Trading Places." It's a reversal that has at least one group of traditional Republican backers deeply concerned. In a recent Fortune magazine survey of 1,000 CEOs, roughly half said they were "extremely or very concerned" about the ballooning deficits.

Then again, there's no need to worry if one's faith in supply-side economics is sufficiently strong. "This administration clearly has an unfettered belief that the more you cut taxes, the more the economy is going to grow," says Rudman. "It's based not on fact but on faith." What's odd is that many people close to the President have expressed similar skepticism in the past. It was the President's father who famously dubbed supply-side theory "voodoo economics." N. Gregory Mankiw, the Harvard economist who now serves as head of the Council of Economic Advisers, dismissed supply-side theory as "fad economics" peddled by "charlatans and cranks" in an academic textbook he wrote. This heretical section of the textbook has since been removed, which is not surprising when one considers the fate of people like former Treasury Secretary Paul O'Neill, who earned the wrath of the President's inner circle for not accepting the view that, as Dick Cheney evidently believes, "deficits don't matter."

"It's shameful the way the Republican Congress has retreated [from fiscal conservatism]," Joe Scarborough, an alum from the GOP class of '94 who now hosts MSNBC's Scarborough Country, commented recently. "In the end, it's all about getting re-elected, staying in power.... It's disgusting."

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