Obama's strategy: 'Addict the people'

Some have accused opponents of big government of favoring (In some cases this accusation has been true. In other cases it hasn’t been true) a "starve the beast"-strategy: first you pass popular tax cuts and temporarily "forget" about the unpopular offsetting spending cuts. Then a deficit will become a big problem, something which will enable people to say that spending cuts are necessary.

Stefan Karlsson

Stefan is an economist currently working in Sweden.

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As Charles Krauthammer points out, Obama may have what one could call a "addict the people" strategy: first you pass big spending increases, and argues that the deficits are necessary for Keynesian reasons, and that the long term fiscal problems can be solved simply by "soaking the rich". In the long run, the deficits will prove to be unsustainable. As people have become dependent on the new spending programs, spending cuts might not be so easy to push through, while it becomes apparent that raising taxes for the rich won't be sufficient to reduce the deficit. At that point, it will be seen as necessary to raise taxes for the middle class and the poor as well, by for example introducing a Value Added Tax (VAT).

Krauthammer is probably right that this is Obama's strategy. Obama wants government to become a lot bigger, but he and his advisors realize that tax increases for the middle class is political suicide at this point (at least if it is honestly labeled as tax increases), which is why they are now only pushing through spending increases. Only later when a fiscal crisis will be obvious will they be able to push through a VAT or other middle class tax increases.

It remains to be seen whether the "addict the people strategy will work or not, though. The "starve the beast" strategy have generally not been so effective. As a VAT will be broadly unpopular (with conservatives hating it because it constitutes tax increases, and leftists opposing it because it is regressive), pushing through it will probably not be so much easier than reversing the Obama spending increases.

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