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US consumers turn activist after housing crisis and recession

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Dean J. Koepfler News Tribune/AP/File

(Read caption) Wearing a tea bag hat and hefting a anti-taxation sign Judith Levy and husband Warren, of Sumner, joined in protest during a anti- tax rally by area Tea Party groups and the Evergreen Freedom Foundation on the Capitol steps in Olympia, Wash., April 15.

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Here is why deficit reduction is so hard: Politicians get reelected by encouraging spending, not savings. Supporting policies that reduce current consumption—either by government or households--rarely gets anyone elected to anything.

Not to stereotype, but nations do have personalities. Italians eat. Russians drink. Americans spend. And when anything—or anyone—gets between us and our consumption, watch out.

Recessions make us grumpy in part because we can’t consume as much as we like. In the depths of the current downturn, the savings rate in the U.S. topped 5 percent. But retail sales have been rising since October, and the savings rate has fallen in half. I suspect Americans won’t really feel better until we drive our savings rate back to zero.

And woe to any politician who stands in the way of this consumption juggernaut by proposing to raise taxes or cut specific government programs. Don’t get me wrong, politicians can easily pander to our current anti-government mood by vowing to “cut spending.” But just wait until they try to axe a specific program. Trimming government consumption--whether Medicare MRIs, oil spill clean-ups, or highway projects--wins few votes.

It is even worse with taxes. A pol merely needs to hint that he favors a tax hike—which might remove otherwise spendable money from voters’ pockets—and it will be time to iron the flack jacket. The public response goes something like this: “I want my iPad. Don’t bother me about my grandchildren’s debt.”

As my colleague Eric Toder notes, misunderstanding this bit of American psychology is where conservatives have gone wrong ever since the Reagan years. Their “starve the beast” theory was simple enough. They thought if they could reduce revenues, government would inevitably shrink. But the opposite happened. Instead of discouraging government spending, tax-cutting only encouraged more, since it decoupled consumption from the inevitable consequence, which is that we must eventually pay the bill by raising taxes.

Some argue that public mood is changing, and point to the tea parties as evidence. I don’t see it. For one thing, I suspect this movement will dissipate as the economy improves. For another, the tea partiers are riddled with internal contradictions. Many demand smaller government but resist Medicare cuts with equal vehemence. They don’t oppose government. They merely reject those programs that don’t benefit them.

More than defining specific deficit reduction proposals, the most valuable role President Obama’s fiscal commission could play is finding a way to change America’s spending uber alles mindset. Until we do, fiscal prudence will continue to be a political loser, and the red ink will flow faster than ever.

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