Inverse Nixon Theory

It’s been said in the past – indeed, it used to be conventional wisdom – that unlikely right-wing governments were more likely to make peace, because they enjoyed credibility and a tough reputation. More obviously, conservatives long enjoyed a reputation for “fiscal credibility”, which supposedly helped them to control inflation by giving the impression that they would either be willing to sit on the money supply, or trade-off unemployment for inflation along the Phillips curve.

Curiously, with what is commonly taken to be a swing to the Right in Germany and France, we’re seeing the opposite. One of Angela Merkel’s first acts on taking office was to announce a future rise in consumption taxes, which isn’t very much different in terms of public perception to cutting them in the meantime. Nicolas Sarkozy has since announced that he’s going to have a pause in the reduction of the national debt – read, reflate the economy somewhat. Specifically, as he’s promised to hand out a €20 billion “fiscal shock”. But nobody appears to be very worried. It’s a big contrast to five minutes ago, when modalities of the Eurosystem’s breakdown were a regular topic on AFOE..

Compare the keenness of the Schröder, Jospin, and de Villepin governments to stick to the script of the Stability Pact, come what may. (No, de Villepin wasn’t a social democrat, but Sarko certainly campaigned as if he had been.) There’s a non-trivial argument that the pact was a serious economic mistake. It would certainly be interesting if it only survived because the Left was paranoid about seeming over lefty, and especially if the continental economy’s uptick had something to do with the Right being able to let it ride.

4 thoughts on “Inverse Nixon Theory

  1. Fun post, but I’m not sure I buy it. The pact’s been gradually undermined, is all. Schröder’s more rwsponsible than anyone.

  2. The “only nixon can go to china” saying is implying that when:
    – Faction A is ideologically opposed to a certain policy (say the US right and diplomacy with China)
    – Faction B (say the US left) is in favour of the policy
    – The leader of faction A can successfully enact that policy whereas the leader of faction B would not be able to. Primarily because it means that faction A would be unable to oppose the without also opposing the leader, and faction B doesn’t want to oppose the policy at all, thus neutering the opposition.

    I’ve never seen it referring only to the right wing exclusively. The events in the article seem to support this Nixon theory, not to suggest a reversal of it.

  3. “One of Angela Merkel’s first acts on taking office was to announce a future rise in consumption taxes, which isn’t very much different in terms of public perception to cutting them in the meantime.”

    Excuse me? Alex, I’d appreciate it if you’d explain what you meant to say here, because as written it doesn’t make much sense.

    I don’t see how announcing a future tax hike is the same as a temporary tax cut. With perfect foresight, the first depresses current consumption (because people save now to pay higher future taxes), while the second has no effect on consumption (because people save the tax cut, correctly thinking it temporary).

    Conversely, with imperfect foresight, the effects are still different. Announcing a future tax hilke has no effect (because you’re assuming that people don’t consider future tax payments or discount them heavily), and the second increases current consumption (because people consider the future tax hike far away and treat their income gain from the tax cut as if it were permanent).

    Either way, they’re very different, so I’m not at all clear as to your point. Are you saying that conservative governments have abandoned maintaining a short-term fiscal balance? Correct me if I’m wrong, but I thought that happened a long time ago.

  4. I’ll go with Factory’s argument. When the Social Democrats in 1992 took the reins in Denmark after a long period of Conservative/Liberal rule, the prime minister (Poul Nyrup) privatized lots and lots, and tightened unemployment rules, to the benefit of all. Third way, and long before Blair and Clinton. A Tory would never have gotten away with it.

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