The media refers to it as a debate around the debt ceiling, but it’s actually far simpler than that. And entirely political.
Back in November, a few weeks after House Republicans won the election and seized control of that body, I wrote to you warning that the House Republicans would try the same scam that Ronald Reagan first rolled out in the 1980s. I wrapped the article up with the “hope that Democratic politicians and our media will, finally, call the GOP out on Wanniski’s and Reagan’s Two Santa Clauses scam.”
So far, no soap. I haven’t heard a single mention of Two Santas in the mainstream media, and I’ll bet you haven’t, either. That’s the bad news.
The good news — perhaps — is that the scam has lost its sting after working so well for them for 42 years. President Biden and House Democrats are standing firm, saying they have no intention of negotiating around the debt ceiling with terrorists threatening to destroy our economy.
But even if it’s the last gasp of this scam, it appears House Republicans plan to go out with a bang. So let’s quickly review how Two Santas works.
Back in 1976 the Republican Party was a smoking ruin. Nixon had resigned after being busted for lying about his “secret plan to end the Vietnam War,” his involvement in the Watergate burglary, and his taking bribes from Jimmy Hoffa and the Milk Lobby. He only avoided prosecution because Gerald Ford pardoned him.
His first Vice President, Spiro Agnew, had also resigned to avoid prosecution for taking bribes.
Newspaper and television editorialists were openly speculating the GOP might implode. The Party hadn’t held the House of Representatives for more than two consecutive years since 1930 (and wouldn’t until 1994), Jerry Ford had ended the War the year before in a national humiliation, the unemployment rate was over 7 percent, as was inflation after hovering around 11 percent the year before.
The Republican Party had little to offer the American people beyond anti-communism, their mainstay since the 1950s.
Americans knew it was Democrats who’d brought them Social Security, Medicare, Medicaid, unemployment insurance, subsidized college, the right to unionize, antipoverty programs, and sent men to the moon. And they knew Republicans had opposed the “big government spending” associated with every single one of them.
But one man — a Republican strategist and editorial writer for The Wall Street Journal named Jude Wanniski — thought he saw a way out. It was, he argued, a strategy that could eventually bring about a permanent Republican governing majority.
In a WSJ op-ed that year, Wanniski pointed out that Americans thought of Democrats as the “Party of Santa” and Republicans as, essentially, Scrooge. Republicans, he noted, hadn’t even proposed a tax cut in 22 years!
The solution, Wanniski proposed, was for Republicans to start pushing tax cuts whenever the GOP held the White House. This would establish their Santa bona fides, particularly if Democrats objected. It would flip the script so Democrats would fill the role of Scrooge.
To make it even easier for Republicans to cut taxes, Wanniski invented and publicized a new economic theory called Supply-Side Economics. When taxes went down, he said, government revenue would magically go up!
Four years later, when Reagan came into the White House with the election of 1980, he picked up Wanniski’s strategy and doubled down on it. (In the primary of 1980, he’d even run on it: his primary opponent, George Herbert Walker Bush, derided it as “Voodoo Economics.”)
Reagan not only cut taxes on the rich: he also radically increased government spending, goosing the economy into a sugar high while throwing the nation deeply into debt.
Citing Supply-Side Economics, in eight short years Reagan ran up greater deficits than every president from George Washington to Jerry Ford combined, taking our national debt from around $800 billion all the way up to around $2.6 trillion when he left office.
By 1992, when Bill Clinton won the presidency, Reagan and Bush’s debt had climbed to over $4.2 trillion, giving Republicans a chance to double down on Two Santas. Bill Clinton would be their test case.
House Republicans loudly demanded that Clinton “do something!” about the national debt, waving the debt ceiling like a cudgel. Over the next eight years they repeatedly wielded the debt ceiling, shutting down the government twice. The battles lifted Newt Gingrich to the speakership.
Clinton caved, making massive cuts to the social safety net to get a balanced budget in a gut-shot to the Democratic Santa programs.
By the end of the Clinton presidency the formula was set. When Republicans held the White House, they’d spend like drunken Santas and cut taxes to the bone to drive up the national debt.
When Democrats come into the presidency, Republicans would use the debt ceiling to force them to cut their own social programs and shoot the Democratic Santa.
As I noted last November, when Clinton shot Santa Claus the result was an explosion of Republican wins across the country as GOP politicians campaigned on a “Republican Santa” platform of supply-side tax cuts and pork-rich spending increases.
Democrats had controlled the House of Representatives in almost every single year since the Republican Great Depression of the 1930s, but with Newt Gingrich rigorously enforcing Wanniski’s Two Santa Claus strategy, they used the debt ceiling as a weapon.
State after state turned red and the Republican Party rose to take over, in less than a decade, every single lever of power in the federal government from the Supreme Court to the White House.
Looking at the wreckage of the Democratic Party all around Clinton in 1999, Wanniski wrote a gloating memo that said, in part:
“We of course should be indebted to Art Laffer for all time for his Curve... But as the primary political theoretician of the supply-side camp, I began arguing for the ‘Two Santa Claus Theory’ in 1974. If the Democrats are going to play Santa Claus by promoting more spending, the Republicans can never beat them by promoting less spending. They have to promise tax cuts...”
Ed Crane, then-president of the Koch-funded Libertarian CATO Institute, noted in a memo that year:
“When Jack Kemp, Newt Gingrich, Vin Weber, Connie Mack and the rest discovered Jude Wanniski and Art Laffer, they thought they’d died and gone to heaven. In supply-side economics they found a philosophy that gave them a free pass out of the debate over the proper role of government. ... That’s why you rarely, if ever, heard Kemp or Gingrich call for spending cuts, much less the elimination of programs and departments.”
Two Santa Clauses had fully seized the GOP mainstream.
Never again would Republicans worry about the debt or deficit when they were in office, and they knew well how to scream hysterically about it and hook in the economically naïve media as soon as Democrats again took power.
When Jude Wanniski died, George Gilder celebrated the Reagan/Bush adoption of his Two Santas “Voodoo Economics” scheme — then still considered irrational by mainstream economists — in a Wall Street Journal eulogy:
“Unbound by zero-sum economics, Jude forged the golden gift of a profound and passionate argument that the establishments of the mold must finally give way to the powers of the mind. ... He audaciously defied all the Buffetteers of the trade gap, the moldy figs of the Phillips Curve, the chic traders in money and principle, even the stultifying pillows of the Nobel Prize.”
After Clinton, George W. Bush was handed the presidency by his father’s friends on the Supreme Court in 2000.
Bush put into place another massive $2.5 trillion GOP Santa tax-cut gift for the rich while committing the US to new spending of over $8 trillion (and 7,054 American lives) on two illegal and unnecessary wars.
Not a single Republican of any consequence publicly objected. None have to this day. The debt ceiling was never mentioned, other than to quietly raise it year after year.
Barack Obama was elected in a 2008 landslide and within a year Republicans were screaming that he “do something!” about Reagan’s and Bush’s national debt that was then climbing toward the $19 trillion he’d face in his last year in office.
Republicans wouldn’t tolerate increasing taxes in any meaningful way and continued to use the debt ceiling as a weapon, so Obama, weakened and waffling, nearly agreed to cut Social Security (the proposed “chained CPI”) before his own party restrained him.
The result was the GOP pushing our nation to a near-default in 2011 that badly damaged our economy for the following two years, cost us hundreds of billions, and hurt Democrats in the 2012 election.
Trump came into office in 2016 after losing the election by almost 3 million votes (but winning the Electoral College with help from Putin) and instantly reverted to Reagan’s Two Santas strategy, again spending like a drunken Santa while cutting taxes.
The total cost of his 4 years of combined new tax cuts and new spending was $13.9 trillion. While a few Republicans — apparently not clued in on the Two Santas scam — finally objected, they were quickly overruled by Party leadership.
As former Florida Republican Congressman David Jolly tweeted this week, “[R]oughly 25% of our total national debt incurred over the last 230 years actually occurred during the 4 years of the Trump administration.” Snopes then rated the claim as “true.”
Now that a Democrat is back in the White House the GOP is again demanding cuts in the Democratic Santa programs, threatening again to repeat the debt ceiling government shutdowns they forced on both Clinton and Obama.
Will McCarthy’s House Republicans again get away with their Lucy-with-the-football routine? Will they succeed at crashing our nation’s economy and blaming it on Biden to hurt Democrats in the 2024 election?
While many in the mainstream media (and Joe Manchin) are already leaning hard on the President to “negotiate” cuts to Democratic Santa programs, the administration insists it’ll stand firm. After all, Biden was first elected to the Senate in 1972 and knows this story well: he’s lived every minute of it.
And, increasingly, it appears the American public has finally wised up to the GOP’s Two Santas scam, even if they don’t know the details or the backstory.
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