By John F. Di Leo -
Reflections on a Federal Budget Impasse…
During the February budget showdown in Washington, Senator Rand Paul rose to speak. He reminded America of our spending habit – a constant pattern of deficit spending, year-in and year-out, in both Republican and Democrat administrations. A spending habit that doesn’t just cause a year of trouble, but an eternity of trouble, since these deficits add up, year by year, into a mountainous national debt, one that doubled – Doubled! – in just the eight years of the Obama administration alone.
And he is right. …
But this is not one of those areas in which the big picture answers all the small ones. We have had recommendations for across-the-board freezes, across-the-board cuts, and we have tried some of them over the years. Such measures may well be appropriate in peacetime, with a growing economy – but they are not appropriate in times of great challenge. And this is a time of great challenge.
That’s not to say that deficits only matter sometimes. No, they always matter… but the way to handle them may vary.
Deficits and Debts
Let’s begin with a quick reminder of what deficits – and national debt – do to us, starting with the definitions:
The deficit is the current period under discussion: I’m spending more money than I have, this quarter, or this year, or this two-year period. We normally address these in annual terms, at the national level, so when we talk about “the deficit,” we’re saying that we’re spending too much this year, borrowing from the future.
The debt must then be the total future… the national debt is that place “down the road” where we’ve been kicking the can for years. Only we don’t kick just one can. Some years, we kick one can, some years, we kick several, some years, we kick cases of cans… and since we never, ever run a surplus, they just keep adding to the cans already there, from years before.
Even worse, in some ways, is the set of future obligations that aren’t counted as part of the debt: promises that we have made without actual documents to count. When the federal government sells a government bond, that’s a clear obligation on the future. This $100 bond will eventually have to be redeemed by $110, or $120, or $130 or more in real money, depending on the interest rate and on how long the holder puts off cashing it in. This is counted in the national debt. So every time the government spends more than it takes in, it issues more of these obligations. And boy, do they add up.
But the bigger challenge is the obligation that isn’t on paper yet. Unfunded mandates riddle our governments, not just federal, but state and local as well. When we pass a law saying “all government buildings must be handicapped-accessible,” such bills don’t usually provide the funding for such well-intentioned plans; they just include a date certain for accomplishment. So, separately, they must find the money to build ramps and elevators and electronic door openers… Such unfunded mandates add to our future costs, but they’re awfully hard to capture in a spreadsheet.
It gets worse. Non-budgetary decisions on one issue create new obligations in others. Consider this: Government at every level has to pay for the law enforcement costs, the court costs, and the prison costs, of prisoners. Governments pay for welfare benefits, such as food and housing and education, for those who cannot afford them. And they design budgets to cover such expenses, based on the citizen population they know about. But what happens when one department says “let’s not enforce the border!”, thus inviting in millions more people who will dip into these systems? Our open borders policy of the past 50 years has brought in hundreds of thousands of villains, and countless millions (yes, literally countless) of foreigners who are a net drain on the welfare state.
This is not to say anything against individuals who are willing to work but are unable… it is just a fact that well-intentioned policies, like open borders and sanctuary cities (to the extent that they ARE well-intentioned… sometimes a dubious position), do create further unfunded mandates that cause the current deficit and the total debt to balloon.
And so we face this mountain of debt, ever growing, with no plans or reasonable expectation of reducing it. All we can hope to do is to minimize how much worse we make it.
Remember, these debts grow with time, even if we don’t add to them. We have to pay interest if we sell a bond. If we don’t issue a bond, and just leave it unfunded for now, then we have to tax our future taxpayers to pay for it. Or we can monetize the debt… just quietly printing more money, paying bills with a devalued currency. This is not only cheating the people we owe, it also cheats everyone on earth, our own citizens most of all, by devaluing the money we already have. None of these – none! – are good options.
All Deficits Are Not The Same
All this being said, one might think that our first step must be to cut, Cut, CUT!!! spending, across the board. This makes sense on its face, but it’s not true. Let’s look at our own home.
We’re broke, so we look at various ways to cut costs. Close off a couple rooms that aren’t needed, to save on heating and air conditioning costs. Cook at home more; eat out less. Pull the kids out of college and put them to work. Keep fixing the old car rather than buying a new one. Move to a city with a lower housing cost.
All these make sense on their face, if you only look at the dollar figure, and nothing beneath it.
But in fact, these things depend on other information, don’t they? If the kid in college has a major that will leave him in minimum wage jobs his whole life, then yes, college is a poor investment, and you should save your money. But if the major will put your young adult in a good career path, then it’s a wonderful investment, well worth finding some way to afford it. And moving to a place where your house costs half as much is wonderful if you can still earn the same amount, but if there’s no demand for your skills in that community, so you’ll earn half as much as you did before, you may end up right where you started.
Government faces these same challenges, and many more.
We must spend money on the border in order to reduce the number of criminals and welfare recipients who continue to flood this country. Spending money wisely on border agents, ICE technology, and building a real wall will wind up cutting costs in the long run, because it reduces so many years of other massive costs down the line.
We must spend money on military equipment, to be ready for current and future threats. The last administration built up the threats posed by North Korea, Iran, and non-state terrorists like ISIS. We must now address these threats, and that costs money. But being ready for war is cheaper than war itself, so if the right military buildup works as a deterrent, we won’t have to suffer the horrific costs, both financial and in human terms, of a WWI or WWII.
Some things aren’t that black-and-white, however. The government has the job of a national highway network, but it can build and maintain that system in conjunction with the states, sometimes with cities, and sometimes even with private partners. The nation’s supply chain must function; if trucks spend three times as long as they need to, in crossing through a metro area, that cost will be felt in the economy, as roads are jammed, traffic accidents skyrocket, and wholesale and retail goods double in price with the cost of transportation. This is complex; there are road projects we do need, for these reasons, and there are road projects that we don’t need, but are pushed due to political connections.
We need a government made up of thoughtful and honest people, to work out these complex decisions. We can’t just say no to them all because we’re broke, or say yes to them all because infrastructure is important. We must pick and choose, doing what we need and postponing or refusing what we don’t. This is difficult in a political climate that forces incumbents to run for re-election on how much spending they brought back to their districts… but somehow it is necessary.
But there is also good news, in that some kinds of welfare spending can go down if the right economic policies are adopted:
Let’s say we spend money on housing, transportation, healthcare, education and food for a million people (sadly, it’s much more, but let’s use that number for the discussion). We may extend the benefit so it continues to be there for those who need it, but if we do the right things in the economy, fewer will need it every year. Lower federal tax rates and a reduction in crippling federal regulations have combined to cause an economic renaissance in America over the past year. These past few weeks alone have seen hundreds of employers announcing salary increases, bonuses, and new hiring.
As these jobs come online, and as these salaries rise, recipients of the basket of entitlements can gradually, even quickly, start to drop. Soon, instead of funding a million recipients, we’re funding nine hundred thousand. Then eight hundred thousand. Then seven. Then six.
The good Lord said, “The poor you shall always have with you.” We cannot expect there to ever be a day when the number of recipients dwindles to zero. But if we take the right steps, we’ll be funding fewer and fewer every year…. Not by throwing them out into the street, but by enabling them to pull themselves up – “by the bootstraps,” as the saying goes – and prosper on their own.
We need to build better rules into these programs, of course… such as the rules instituted during the Clinton administration that were gradually removed during the Bush and Obama administrations. We must reach the point where welfare is not so generous that people refuse to take the first step on the ladder because it’s more lucrative to stay home than to get a job. This is a challenge for our government, requiring attention and wisdom from officeholders who rarely appear to exhibit it.
But if we do… and if we stay the course, reelecting our Republican majorities and our Republican president so that we don’t cut short a recovery that shows so much promise…. Then we will indeed be on track to eliminating deficit spending and eventually getting to work on the debt itself.
The Task for Today
We must heed Senator Paul’s call for attention to the deficit, yes… but we must also resist the corollary call for tax increases that always follow. The “deficit hawks” understand the burden of debt but nothing else about an economy; they believe in attacking debt by raising taxes, unwilling to see either the economic argument or the empirical data proving that the Laffer Curve is correct: that once your taxes are too high already, tax rate increases bring in less revenue, not more, as they depress economic activity.
We must continue to focus on private sector growth. Our president is directing his agencies to cut out crushing regulations, and our congress must continue to identify ways to reduce tax rates.
But there is a limit to what a president can do, even with regulations. Congress instituted agencies like Fish and Wildlife, Alcohol Tobacco and Firearms, the Food and Drug Administration, and the Environmental Protection Agency (and hundreds and hundreds more just like them!).
The president can order them not to exceed their mandates from Congress, but he cannot order them to disregard the mandates they have. That’s why Congress owns the responsibility of oversight; they need to rein in most of these agencies. Wherever Congress told an agency to do too much, Congress must be the one to eliminate such mandates and shrink the agency.
Otherwise, President Trump’s executive orders can be overturned by the next president, just as he has rightly overturned so many of his own predecessor’s.
So… should Congress worry about the Deficit? Oh yes.
And should Congress worry about the Debt? Oh yes indeed. It is a millstone around all of our necks, for ourselves, our children, and our children’s children.
But we can’t tackle it as one sole issue of its own. Our elected officials – and the pundits and reporters who pressure them and keep the public informed, as well – must learn to focus on the individual issues.
Keeping a hundred balls in the air is hard. Focusing on every line item of a million dollars for an Afghan cricket channel, in a budget that runs to the hundreds of billions, is not an easy thing. But it is imperative.
We cannot refuse to buy anti-ballistic missiles or build a border wall, just because we’re broke. We have to be intelligent, and prescient.
Perhaps we could start where it all began: with the Constitution, If we just focused on spending money on things that the Constitution says we should, and gradually reduce spending on the things it doesn’t… we’d be well on track for budget surpluses as far ahead as the eye can see.
Copyright 2018 John F. Di Leo
John F. Di Leo is an international trade compliance and transportation professional, amateur actor, and recovering politician (but, like any addiction, you’re never really cured). His columns have appeared regularly in Illinois Review for the past nine years.
Permission is hereby granted to forward freely, provided it is uncut and the IR URL and byline are included,
