03/27/2012 10:58 am ET Updated May 27, 2012

I'll Raise You a Santa Claus

Back in the early days of the Great Depression, Herbert Hoover may have committed political suicide for the Republican party with his inaction, but he was at least acting consistently with his belief in small government and free markets. Republicans were the "no Santa Claus party," the party that always wanted to have addition, the creation of private sector wealth, by subtraction, a smaller and leaner government. On the other hand, Democrats were the Santa Claus party, giving things to people to support their middle class aspirations like social security and unemployment benefits, two New Deal programs.

A fascinating article titled "Two Santa Clauses or How the Republican Party Has Conned America for Thirty Years" by Thom Hartmann written in 2009 explains how the Republicans came to reject the Hoover-Goldwater philosophy of fiscal restraint to become the Big Spenders they are when in power today.

According to the article, in 1974 a trained journalist named Jude Wanniski got tired of the Democrats being the "Santa Claus party" by giving to the middle class programs like Medicare and huge infrastructure contracts that rewarded their unionized base and were paid for with taxes on the rich that no one complained about because of an expanding economy.

Economists at the time widely accepted that economies were driven by demand. Logically, when people have money they want to buy the things that businesses create, which leads to business expansion.

Wanniski is said to be the originator of the term "supply-side" economics. According to the article, the theory turned classical economics on its head by theorizing that people wanted to buy things not because they had money, but because things were available for purchase. Thus, supply stimulated demand. Arthur Laffer entered the picture to suggest as taxes went down, government revenues would go up. This counterintuitive idea has been part of GOP gospel since then and the evidence tells us it is a fiction.

For example, Alan Viard, senior economist at the Council of Economic Advisers during Bush's first term, told the Washington Post in 2006, "Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that." Robert Carroll, deputy assistant secretary for tax analysis at the U.S. Treasury Department during Bush's second term, also told the Post, "As a matter of principle, we do not think tax cuts pay for themselves. -- taken from "No, Gov. Pawlenty, Tax Cuts Don't Pay for Themselves" by Bruce Bartlett

Thus, using the ideas of Wanniski and Laffer, Ronald Reagan stated he could cut taxes causing the entrepreneurial class to build more factories and produce more goods, thus increasing governmental tax receipts. George H. W. Bush, of course, famously called Reagan's ideas "voodoo economics." But then, according to the article, Wanniski conjured up the "Two Santa Clauses" theory enabling the Republicans to take power for the next 30 years.

He had the idea that Republicans could "heavily market" individual tax cuts for the middle class of "a few hundred dollars" and cut those of the wealthy collectively by "hundreds of billions," which would in theory cause the wealthy to go out and build factories thus stimulating the economy and increasing tax revenues. He reasoned that Democrats would then have to become the "anti-Santa Clause" party either by raising taxes or by cutting social programs. So, in effect, the parties would change historical roles and the Democrats would become the stewards of fiscal responsibility cutting back on GOP prolificacy.

Then how to sell the Reagan deficits? David Stockman contrived the idea that with these deficits Republicans were "starving the beast" and, as a result: "Democrats would never, ever in the future be able to talk again about national health care or improving Social Security."

Acting consistently with Wanniski's expectations, Clinton then had to raise taxes and declared "an end to welfare as we know it." George W. Bush, on the other hand, raised the "Two Santa Clauses" game to an art form by granting tax cuts to the wealthy and doubling the national debt, in the process creating a new prescription drug entitlement for seniors. Now the talk is of austerity, which even President Obama has bought into almost reaching a deal with Republicans to cut Medicare and social security significantly.

As Thom Hartmann puts it:

The Republicans got what they wanted from Wanniski's work. They held power for thirty years, made themselves trillions of dollars, cut organized labor's representation in the workplace from around 25 percent when Reagan came into office to around 8 of the non-governmental workforce today, and left such a massive deficit that some misguided "conservative" Democrats are again clamoring to shoot Santa with working-class tax hikes and entitlement program cuts.

So Democrats may have to come up with a new narrative. They can not flourish by promising to be the party that raises taxes and makes cuts to popular programs, even if they succeed in inheriting the Republican's former mantle as the party of fiscal responsibility. Even with today's massive deficits, the Republican presidential candidates are promising significant tax cuts for the wealthy. While it is difficult to know if Republicans still believe ahistorically that tax cuts increase tax revenues or cynically just want to "starve the beast" into oblivion or both, their "Two Santa Clauses" policy has resulted in a domination of government for the last 30 years and we have the skyrocketing deficits to prove it.