- The Obama Recovery. The U.S. economy was in free fall in late 2008, whether measured by GDP statistics, the monthly jobs numbers, or inter-bank spreads. Was the end of the recession in mid-2009 attributable to policies adopted by President Obama? A full evaluation of that question to economists’ standards would require delving into the complexity of mathematical models. The public generally has a simpler standard: was the impact big enough to be visible to the naked eye? Amazingly, the answer is “yes.” Whichever of those statistics one looks at, and whether it is coincidence or not: the economic free-fall ended almost precisely the month that Obama took office, January 2009.
- Emerging markets have generally had much better economic fundamentals over the last decade than advanced economies. For example, one third of developing countries have succeeded in breaking the historical syndrome of procyclical (destabilizing) fiscal policy. For the first time, they took advantage of the boom of 2003-08 to strengthen their budget balances, which allowed a fiscal easing when the global recession hit in 2008-09.
- The 15-year cycle in EMs. Market swings that start out based firmly on fundamentals can eventually go too far. Some emerging markets like Turkey look vulnerable this year. A crash would fit the biblical pattern: seven fat years, followed by seven lean years. Here are the last three cycles of capital flows to developing countries:
- 1975-81: 7 fat years (”recycling petrodollars”)
- 1982: crash (the international debt crisis)
- 1983-1989: 7 lean years (the “Lost Decade” in Latin America)
- 1990-1996: 7 fat years (Emerging Market boom)
- 1997: crash (the East Asia crisis)
- 1997-2003: 7 lean years (currency crises spread globally)
- 2003-2011: 7 fat years (the triumph of the BRICs)
- 2012: ?
Archive for the ‘Obama Administration’ Category
Obama’s slogan for the SOTU last night, “An Economy Built to Last,” was a way of referring to one of the accomplishments of his first years: successfully reviving the auto industry, which many had said couldn’t be done without nationalizing it. References to other accomplishments were stated more quickly, such as national security (withdrawal from Iraq, disposing of Osama bin Laden) or more obliquely, such as health care reform, financial reform, and arresting the freefall of the economy that Obama inherited in January 2009 (via fiscal stimulus and TARP - both of which are not especially popular programs).
I realize of course that some will not view these as true “accomplishments.” They will argue that we should have let the auto industry go bankrupt, or should have spent another 10 years in Iraq, or that bin Laden was deprived of his human rights, or that the Dodd-Frank bill went too far in financial regulation (or not far enough), or that a federal effort to reduce unnecessary hospital infections constitutes “socialism” or “death panels.” But most Americans wanted these policies.
Evidently the President also has in mind reducing American dependence on imported oil. And slowing the big rise in income inequality, in part by allowing to expire on schedule the tax cuts on the top earners like Mitt Romney that ten years ago brought their tax rates down to 15%.
To me, the phrase “built to last” suggests that the medium-term goal is economic growth that resembles the record expansion of the late 1990s, which was driven by expanding exports, technology, and private sector employment. This would be an improvement over the unsustainable finance-based economic expansion of the 2002-2007, or those of the 1960s, 70s or 80s; they were built on easy monetary or fiscal policy and an expanding government sector, and thus contained the seeds of their own destruction when inflation, debts and asset prices got out of control.
Indeed, as inadequate as the current economic recovery has been, the expansion of private sector jobs over the two years has exceeded the rate during the Bush Administration (when the government sector was the primary source of what limited job creation there was). This comparison holds even if one excludes the two recessions at the beginning and end of the 8-year Bush period, as the graph shows.
[TV clip, Post Mortem on the State of the Union Message," BNN," 2012.]
THE BIGGEST THREAT TO THE GLOBAL ECONOMY IS …
Anti-market bias. -Bryan Caplan • Procrastination. -Peter Diamond • Short-term thinking. -Esther Dyson • A euro meltdown. -Dean Baker • Tax-cut fanatics. -Jeffrey Frankel • The bond market. -Andy Sumner •
MY OUT-OF-THE-BOX SUGGESTION TO REVIVE THE GLOBAL ECONOMY IS
Wipe out debts. -Daron Acemoglu • Require candidates for national office to pass ninth-grade tests on arithmetic, history, and geography. -Jeffrey Frankel • Double down on science. -Tyler Cowen • A government lottery where winners have mortgages, student loans, or other debt paid off. -Mark Thoma • We don’t need “out-of-the-box” solutions; we need “head-out-of-the-sand” ones. -Adam Hersh • Pray. -David Smick
BARACK OBAMA’S BIGGEST ECONOMIC MISTAKE HAS BEEN …
Letting Larry Summers go. -Gary Hufbauer • Not reorganizing the big banks. —David Smick • Trying too hard to find common ground with an opposition that won’t compromise on any terms. -Vincent Crawford • Assuming office in January 2009. -Jeffrey Frankel
OCCUPY WALL STREET IS …
A misdirected tantrum. -Philip Levy • A harmless pastime for unemployed youth. -Gary Hufbauer • Reasonable complaints about crony capitalism plus self-righteous economic illiteracy. -Bryan Caplan
BY ELECTION DAY 2012, THE U.S. ECONOMY WILL BE …
Improving, but leaving many people behind. -Arnold Kling . Limping along, with unemployment declining but still around 8 percent. -Daron Acemoglu . Blamed for the outcome. -Jeffrey Frankel
ECONOMISTS SHOULD BE PAYING MORE ATTENTION TO …
How people actually behave rather than how they are idealized to behave. -Abhijit Banerjee • Corporate governance. -Peter Diamond • The fact that macroeconomic theory went up a blind alley some 20 years ago. -Jeffrey Frankel • Creeping protectionism across the global economy. -Gary Hufbauer • The impediments to job creation for young people. -Valerie Ramey • Reality. -James D. Hamilton
My preceding blogpost, the Hour of the Technocrats, was inspired by the recent accession of Mario Monti and Lucas Papademos, both professional economists, to the prime ministerships of Italy and Greece, respectively. Today we turn to the U.S., where the political process seldom views academic credentials benevolently.
In the United States, Senator Richard Shelby scorned President Obama’s 2010 nomination of Peter Diamond, an eminent MIT Professor of Economics, and prevented his confirmation as a governor of the Federal Reserve Board. The Alabama Senator farfetchedly claimed that the nominee was not qualified, and persisted despite the coincidence that Diamond won the Nobel Prize in Economics soon after his nomination (deservedly). But, then, Shelby was holding up an astounding 70 of President Obama’s nominations, just to try to get two pork projects in his home state funded. Diamond finally withdrew in June 2011, because Shelby and other anti-technocratic Senators had blocked the confirmation process for 14 months and were clearly going to continue to do so. Diamond, like Axel Weber in my preceding blogpost, was comfortable foregoing the limelight.
Of course there are other kinds of technocrats than economists. Senate Republicans also blocked Elizabeth Warren - a Harvard professor, but of Law, not Economics — from becoming the first head of the new Consumer Financial Protection Bureau. Even at the “quant” end of the finance field spectrum, the anti-technocrats in Congress have hamstrung the Treasury’s new Office of Financial Research, and it has not been possible to find a finance professor to be the first Director of the new agency. As always, the Senate continues to hold up on political grounds confirmation of highly qualified technocrats for ambassadorships, judgeships, and so on. The latest was the end last week of the campaign to get the Senate to confirm Don Berwick, another Harvard professor (School of Public Health), who had been doing an excellent job of running Medicare and Medicaid. Another current example is the stalled nomination of Michael McFaul, an outstandingly qualified political science professor from Stanford, to be ambassador to Russia. The American public has been losing out on the services of a lot of top-quality officials.
It goes without saying that academic or technical expertise is neither a necessary nor sufficient criterion for a successful government official. Far from it. On the one hand, many of my colleagues on the faculties of elite universities would not make great policy makers — lacking some of the desirable leadership, managerial, or other interpersonal skills. On the other hand, many excellent political leaders have not been intellectuals. George Washington and Dwight Eisenhower are two examples among U.S. presidents.
I would, however, argue that it is necessary to pass a certain threshold of awareness of facts and curiosity about the world. To take just a few examples of geographical knowledge, a candidate who does not know where the Battle of Concord was fought, where Paul Revere rode, the difference between Brazil and Bolivia, that Africa is not a single nation, which country Iran is, or which country Libya is, is not likely to make a good president. Call me an egghead if you will; but I consider a decision to invade the wrong country to be more than a minor technical slip.
After a month of high drama the Senate at high noon today voted to pass a bill to raise the debt ceiling. How to evaluate this outcome? If I must give a one-word verdict, it would be “good.” If I can expand to two words, it would be “not good.” If I can elaborate to 20 words: “The legislation confirms the sorry state of our public deliberations, but it is probably the best that could be hoped for,” given where the negotiations were as the big hand on the clock approached twelve.
In what sense was the outcome to the debt ceiling standoff good? It was much better than a number of alternatives that could have easily happened. After the pin had been pulled out of the hand grenade, Washington managed to put it back in. Specifically, it is good that:
- 1. Those who favored a US default — in some cases deliberately, not just as a bargaining tactic — did not prevail.
- 2. Those who sought to force the Congress and White House to go through the madness of voting on the debt ceiling every few months between now and the next presidential election did not prevail.
- 3. The bill’s 10 years of spending cuts are not front-loaded. Frontloading would have substantially raised the chances of going back into a new recession. (So would have default or an uncertainty-maximizing short-term fix.)
- 4. The bill has a mechanism that just might in November demonstrate to the arithmetically innumerate that it is literally impossible to eliminate the budget deficit if the cuts are to come primarily in discretionary non-security spending. Instead, military spending, entitlements, and tax revenues will have to be part of the eventual solution — as also favored by the American people in polls, even a majority of Republicans. This epiphany on the part of the people who are described as die-hard fiscal conservatives is needed before we can break the political log-jam. A solution is not possible so long as the extremists are under the mistaken belief that the deficit can be eliminated with cuts concentrated in domestic discretionary spending and so long as they have veto power in the eyes of the Republican leaders.
The mechanism is to force Congress to confront an unpleasant but clear choice between (i) on the one hand, deep automatic cuts that hit defense, which are anathema to most Republicans, and Medicare, which are anathema to Democrats, and (ii) on the other hand, the more thoughtful recommendations of a bi-partisan Joint Select Committee on Deficit Reduction, which would certainly spread out the pain more to include increased tax revenues, anathema to Republicans, and other entitlement cuts, anathema to Democrats. The 12-member panel is to report its recommendations in late November, and the Congress is to vote on them in December. This mechanism is of course crude, but may be just the sort of thing we need to force individual congressmen to confront arithmetic.
Some have asked how this panel will differ from the ill-fated Simpson-Bowles commission. A critical difference is the requirement that the Congress must vote up-or-down on the recommendations. (This was also a feature of the original version of what became the National Commission on Fiscal Responsibility and Reform; but the provision was voted down by Senate Republicans, including some who had sponsored the proposal until President Obama came out in favor of it in January 2010.)
In what sense was today’s outcome to the debt ceiling stand-off “not good?” It would have been better if:
- 1. The Republicans had agreed to some of President Obama’s various compromise proposals over the last year and a half; or
- 2. The showdown had at the last minute forced a “$4 trillion” Grand Bargain in which all sides had ceded ground in order to adopt a workable and credible plan to get back to fiscal responsibility gradually over the coming decade, rather than subsisting on political rhetoric.
- 3. The outcome had included something to help the current faltering recovery.
- 4. President Obama had come off looking like Gary Cooper.
[Comments can be posted at SeekingAlpha.]
In the 1955 movie Rebel Without a Cause, James Dean and a teenage rival race two cars to the edge of a cliff in a game of chicken. Both intend to jump out at the last moment. But the other guy miscalculates, and goes over the cliff with the car.
This is the game that is being played out in Washington this month over the debt ceiling. The chance is at least 1/4 that the result will be similarly disastrous.
It is amazing that the financial markets continue to view the standoff with equanimity. Interest rates on US treasury bonds remain very low, 3% at the ten-year maturity. Evidently it is still considered a sign of sophistication to say “This is just politics as usual. They will come to an agreement in the end.” Probably they will. But maybe not. (I’d put a ½ probability on an agreement that raises the debt limit, but just muddles through in terms of the genuine long term fiscal problem. That leaves at most a ¼ probability of a genuine long-term solution of the sort that President Obama apparently proposed last week - described as worth $4 trillion over ten years.)
My advice to investors is to shift immediately out of US treasuries and into high-rated corporate bonds. If the worst happens, you will probably save yourself from a big capital loss within the next month. If not, there is no harm done.
The game is not symmetric. The Republicans are the ones who are miscalculating. Evidently they are confident of prevailing: they rejected the President’s offer, even though he was willing to cut entitlement programs.
The situation is complicated because there are a number of different people crammed into the Republican car. There is one guy who is obsessed with the theory that, come August 3, the federal government could retain its top credit rating if it continued to service its debt by ceasing payment on its other bills. But this would mean failing to honor legal obligations that have already been incurred (paying suppliers for paper clips that have already been bought, paying soldiers their wages for last month’s service, sending social security recipients their checks, etc.). This is like observing that the cliff is not a 90 degree drop-off, but only 110 degrees. It doesn’t matter: the car would still go crashing into the ocean far below. The government’s credit would still be downgraded and global investors would still demand higher interest rates to hold US treasuries, probably on a long-term basis.
There are other guys (and gals) in the car who are even more delusional. They are dead set on a policy of immediately eliminating the budget deficit (e.g., those opposed to raising the debt ceiling no matter what, or those campaigning for a balanced budget amendment), and doing it primarily by cutting nondefense discretionary spending. This is literally impossible, arithmetically. But they honestly don’t know this. It is as if they were insisting that the car can fly. Sometimes it can be a good bargaining position to adopt a very extreme position. But if you are demanding that the car flies, you are not going to get your way no matter how determined you are.
It seems likely that the man in the driver’s seat - House Speaker John Boehner - does realize that his fellow passengers don’t have the facts quite right. But there is also a game of chicken going on within the Republican car. The crazies have said they will oppose in the next Republican primary election any congressman who votes to raise the debt ceiling or to raise tax revenues. (Yes, they think they would support someone who would eliminate the budget deficit primarily by cutting non-defense discretionary spending; but remember, this is arithmetically impossible.) The guy who is riding shot-gun in the car - the one who believes the car can fly — is trying to put his foot on top of Boehner’s on the accelerator pedal.
It seems to me that Boehner, too, is miscalculating. Given that the car can’t fly, the crazy guy is probably going to oppose him in the primaries no matter what he does. So I don’t see what his plan is. But whatever it is, he has made it clear that he doesn’t plan to agree to any increase in tax revenues.
As a result the Republican leadership is in the remarkable situation of refusing to agree to Obama’s offer to solve the problem so long as the solution includes raising tax revenue, even if it is via such measures as ending distortionary subsidies for ethanol, oil companies, and corporate jets.
If I had to guess: The financial markets will wake up just before August 3. US bond prices will finally fall. The market reaction will shock the Republican leadership into action. (Precedents include the delayed congressional passage of the unpopular TARP legislation in the fall of 2008 and the delayed passage of an unpopular IMF quota increase 10 years earlier.) They will finally make the small but necessary concessions on tax revenues. But by then it might be too late.
President Obama said yesterday, “The only question is whether politics or ideology are going to get in the way of preventing a government shutdown.” This is indeed the interesting question: Is politics motivating the Republicans, or ideology? I realize that Obama meant to ask whether the government would be shut down. But humor me while I interpret the sentence the other way: Politics versus ideology.
Most of what the Grand Old Party has done in the last two years can much better be explained by politics than ideology. For example, only politics can explain a systematic strategy of opposing whatever the White House favors, even when this requires changing one’s vote — for example on the fiscal commission bill that Senators like John McCain had previously been sponsors of. Only politics can explain the long-time refusal of so-called fiscal conservatives to name the specific spending programs they want to cut.
On Tuesday Representative Paul Ryan unveiled a new long-term budget plan that apparently comes closer to naming the specific programs he wants to cut. Medicaid and Medicare. Perhaps we are getting closer to the point where we can actually have a debate over ideology, over competing policy priorities. This would be an improvement over the nonsense that has passed for public debate in recent years.
If so, let us be clear that, despite the rhetoric, the policy priority of the Tea Party and Paul Ryan is not fiscal conservatism. Fiscal conservatism is supposed to mean the reduction of budget deficits, paying for what you spend, matching tax revenue to expenditure. Someone who was sincere about eliminating the budget deficits that we have inherited would propose a long-term plan that included roles for raising tax revenue and cutting defense spending, in addition to slowing the growth of entitlements and domestic spending. But the tax cuts in the Ryan plan in fact would lose revenue almost equal to its spending cuts. In other words, it mostly uses the cuts in federal medical care spending to pay for more tax cuts. This pattern is not new. The supposed fiscal conservatives who were elected to Congress last November have increased the budget deficit. Their insistence on renewing the Bush tax cuts (for the rich, as usual) has added hundreds of billions of dollars to the current deficits, outweighing all the specific spending cuts that they have proposed, combined. Other ways they are adding to the deficit include trying to cut funding for IRS enforcement and trying to repeal the Obama health care reforms. (The Ryan plan would repeal the health reforms, but ignores that doing so would add to the deficit according to CBO’s scoring.) These choices follow the tradition of those “fiscal conservatives” Ronald Reagan and George W. Bush whose budgetary policies created the majority of the national debt we have to live with today.
Even though Obama’s opponents in Congress cannot sustain the claim of being fiscal conservatives, it is possible that some will now genuinely lay claim to the other two-word ideological phrase: “small government.” Do they want to, finally, come out and say explicitly that their goal is to cut domestic spending (especially entitlements) in order to cut taxes, putting the priority on shrinking government rather than eliminating the budget deficit? Are they prepared to own Dick Cheney’s claim, “Reagan showed that deficits don’t matter”?
I am not sure if they are. Ryan said Sunday “We are going to put out a plan that gets our debt on a downward trajectory and gets us to the point of giving our next generation a debt-free nation.” This incredible sentence suggests that he still lacks the requisite numeracy (or sincerity) that many have inexplicably attributed to him. The numbers in the plan that he proposed two days later don’t come close to the headline claims of shrinking the budget deficit by $4 trillion cumulated over the next decade, let alone eliminating it altogether. But does Ryan even understand that to pay off the debt that Reagan and Bush bequeathed us we would have to run $100 billion surpluses for a hundred years?
Most prominent economists and the sensible political middle ground in Washington agree that the federal government must eventually address its long run fiscal problem; but they also know that it is not possible to begin to eliminate the budget deficit if tax increases and entitlements cuts are ruled out. The Bowles-Simpson Commission in December made specific proposals, many of which are the sort that we are going to need — all of them highly unpopular….proposals like raising the retirement age, limiting tax expenditures, and raising the gas tax. Many reasonable-sounding editorialists and commentators have said recently that President Obama ought to be brave enough to lead, by coming out in favor of unpopular measures such as those in the Commission’s report. Supposedly the American public is mature enough to rally around such a candid position.
I think not. (Whenever a candidate promises to “give the American people a government as good as they deserve,” I can’t help thinking, “no, no; don’t do that!”) If Obama were to come out in support of the report’s specific proposals, his opponents would reliably and successfully attack him for wanting to raise taxes and “hurt seniors.” As the White House puts it, this would poison the well: After these attacks, the country would be a step farther from coming to grips with the problem, not a step closer.
I have a proposal. President Obama should send to Congress a bill to establish a bipartisan National Commission on Fiscal Responsibility and Reform. The body would be chaired again by Bowles and Simpson, who would be able to move more quickly this time, refining their previous proposals. (Ideally they would drop the tax cuts for the rich, the inadequate detail on medical costs, and the pipe dream that spending can be brought down to a lower level of GDP than where Reagan had it.) One hopes that a majority of the Commission members, from both parties, would agree to join hands and come out together in support of a good package of fiscal measures. (Of course, grandstanders like Paul Ryan will again vote no.)
How could yet another commission solve the problem? Why would it succeed when the first Bowles-Simpson Commission failed? Obama should include in the legislation a provision that the recommendations of the Commission would automatically go to Congress for an up-or-down vote. Those knowledgeable in the ways of Washington have long known that this is the way to solve the problem, by giving individual politicians in each party some protection against the attacks from opportunistic critics in the opposite party.
Does the idea of a bipartisan ex ante agreement to promote the Commission’s findings, before the gory details are visible, sound familiar? President Obama pushed for precisely such legislation in Congress in January 2010. Among the sponsors of the bill had been John McCain and five other Republican Senators. But when they saw that Obama was for it, the Republican sponsors switched sides and voted the other way. (They were for it before they were against it.) The bill was defeated 53-46. Obama, in February 2010, was then forced to create the Bowles-Simpson commission by Executive Order instead, knowing full well that without the critical congressional pre-commitment the Commission was unlikely to be able to break partisan logjams. And so it was.
Why did these supposedly “fiscal conservative” sponsors vote against the bill? So far as I know, nobody has ever offered any explanation other than the obvious one: they would rather make political hay out of trying to pin unpopular tax increases or medicare cuts on Obama in the 2010 congressional elections, than to make progress on the deficit. As Alan Simpson (R - Wyo) said, their purpose was “to stick it the President.” Well, they got their 2010 congressional elections. So let’s try the same proposal again now. Maybe it would pass this time. More likely it would fail, for the same political reasons. But at least if the Republicans again refused to support the commission when it is an ex ante abstraction, then it would be hard for anyone to deny that they would be sure to oppose the White House if it were to support the specific recommendations after they became known. The exercise should at least clarify who is serious about necessary reforms and who is more interested in political gamesmanship.
I never cease to be frustrated that the current public policy debate is described as a contest of ideas: fiscal conservatives versus liberals. It is not just Republicans or Tea Partiers who believe that they are fiscal conservatives, no doubt sincerely. Democrats and liberals seem to accept this characterization at face value, as does most of the media.
The problem is that a heavy majority of the supposed fiscally conservative congressmen, although passionate about cutting government spending in the abstract, are in truth no better able to find specific dollars of budget cuts that they can support or defend to their constituents than are the Democrats. Factoring in their immutable desire to cut taxes, I believe that if the Republicans were in full control, we would have larger budget deficits in the coming years than if the Obama crowd retained power. This is what happened in a big way when Presidents Reagan and GW Bush took office promising to cut the debt while also cutting taxes. Spending, deficits, and debt soared during their terms, relative to their respective Democratic predecessors. There is no reason to think anything has changed.
The first thing the Republicans did after their congressional victories in the November election was achieve their precious extension of the Bush tax cuts for the wealthy. This extension will raise the budget deficit by more than all the domestic spending cuts that all of the Congressional freshmen have identified put together.
Next they turned to their campaign to kill Obamacare. It was a surprising achievement one year ago when President Obama managed to pass a health reform bill that simultaneously would improve medical treatment while bending down the cost curve in the long run (through such policies as persuading hospitals to cut down on unnecessary surgery and to reduce infections). But it is even more surprising that the conservatives can continue to get away with simultaneously tarring the reform as “death panels” while refusing to acknowledge that it will cut costs. Their plans for going back to our previous health care system include suspending their own rule that bills that would increase spending (as determined by the non-partisan Congressional Budget Office) must be paid for.
The zeal to cut funding for such tiny programs as the National Endowment for the Humanities and Planned Parenthood is accepted as evidence of the sincerity of the fiscal conservatives. I wish the Democrats would not fall for that bait. Their anguish over such cuts, while understandable, plays into the old narrative of big versus small government. The same with the bigger, but still small, categories of domestic spending such as food stamps. The Right reacts to such liberal anguish with glee, while the Center infers - less vindictively, but no more accurately - that such cuts are part of a painful but necessary fiscal adjustment. Losing the center is no way to put together a political majority.
Yes, fiscal adjustment is necessary. I might even think that such cuts would be a price worth paying, if they were a proportionate component of a comprehensive plan to address the long-run fiscal situation. But they are nothing remotely like that. Rep. Paul Ryan’s supposedly tough long-term plan to cut spending doesn’t balance the budget until 50 years from now and runs up another $62 trillion in national debt in the meantime, as Matt Miller and others point out. Moreover, as everyone knows, the cuts that the House passed last week are not going to take effect anyway: the Senate and the presidential veto render them all but irrelevant. As usual, it is all about perceptions. I don’t think the perception should be that Democrats stand in the way of fiscal responsibility. So I would prefer to divert the narrative from the unenlightening and sterile debate of small versus big government, to the realities of arithmetic and history.
Evidently the four-word slogan “No Taxation Without Representation” is too complicated to fit on some people’s bumper stickers. They have chopped off the last two words. They don’t want taxation period.
The “Tea Partiers” revere the Constitution. But some might lack the knowledge of early American history that they claim. In honor of George Washington’s birthday, February 22, I would like to recall a bit of that history.
The Boston Tea Party is not in fact the most appropriate historical precedent for the grass roots protests that have received so much attention over the last year. The famous slogan motivating the patriots in Boston Harbor in 1773 was “No Taxation Without Representation.” But democratic representation was achieved with the American Revolution. The Whisky Rebellion of 1794 is a much closer parallel for today’s protestors. Or the earlier Shays’ Rebellion of 1787, the episode of anarchy to which many Americans reacted by seeking a federal constitution. The pitchfork-carriers in these rebellions were protesting against taxation with representation. They did not want to pay the taxes necessary to fund the government services they enjoyed — which at that time meant servicing the debt from the Revolutionary War. (Sound familiar?) President George Washington, not the rebels, was defending the Constitution against its first severe test, when he personally put down the Whiskey Rebellion with force.
Incidently, the rebels had no appreciation of good public finance theory either, needless to say. Theory urges taxing a beverage the excessive consumption of which imposes high costs on others. Whiskey, rather than tea. President Washington, and his Treasury Secretary, Alexander Hamilton, probably understood that principle. Today, it means taxing fossil fuels more (and payrolls less).