Cutting Spending by not Cutting Spending


“How’s that Starving the best coming along?”, one might ask.  For 30 years since the Reagan Presidency, the idea that cutting taxes would restrain spending and that raising them would only encourage spending have an article of faith among Republicans and conservatives.  The idea that politicians like spending money and that giving them more will encourage spending has a lot of intuitive appeal, and recognizes politicians are particular driven by things other than getting re-elected usually.  As long as government has money to spend it will.  The whole point being this would be a way to enforce thrift on the government that demanding a balanced budget or reduced spending would not.  Republicans came to this conclusion from many years prior to Reagan in directly advocating fiscal restrain, and meeting little or no success in cutting spending or winning elections.  Starve the beast was an exciting way to cut spending, BUT NOT ACUTALLY CUT spending.

But ideas, even those that are appealing, should be tested against data.  In fact when taxes were increased in the early 1990’s to reduce the deficit, the deficit was reduced.  Spending did not increase to match the increased revenues.  Furthermore reduction in taxes in the last decade have not reduced spending, but have only substantially added to the national debt.

This spring a variant of the starve the beast idea will arise.  By law the Federal treasury is limited in the amount of debt it may issue.  The idea that seems to be gaining support among Republicans is to try again to force cuts in spending, but not by cutting spending but by refusing to issue the debt to pay for it.  It’s hard to have any more confidence in this idea to cut spending but not spending than in its tax cut based predecessor.  At Econobrowser this is the perspective:

 

One of the peculiar embarrassments of the American political process is the fact that Congress votes separately on the deficit and debt, as if they were two different decisions. This bizarre arrangement allows Congress the luxury of instructing the Treasury to spend more than it takes in as revenue while at the same time voting to deny the authority to borrow the funds that would be necessary to implement the plan.

If the government is (a) required by the deficit legislation to spend, and (b) precluded by the debt legislation from borrowing, the Treasury would be forced into default. The greater the likelihood markets attach to such an event, the higher will be the interest rate the government has to pay on Treasury debt. A politician who votes for the spending and tax measures that produced the deficit but against a debt ceiling consistent with these is deliberately wasting taxpayer dollars for no purpose other than to grandstand before voters as a "fiscal conservative". Anyone playing such a game has complete contempt for the intelligence of their constituents.

Long story short, if we want spending cut, we have to cut spending.

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One response to “Cutting Spending by not Cutting Spending

  1. Well said.
    Some also link this to the corporate agenda of repealing a century of progressive policies from T.R. and forward.

    But,
    Ali Welsh CNN had a run-through yesterday about the budget and the part that’s discretionary spending and not defense.. ie. up for cutting; about $400-500 billion.. Wtf?
    How in the world is $1.2tr deficit and $14tr debt gonna shrink with that?

    And it is interesting.. how this starve-the-beast concept is gonna work out the next few years. Cut in popular programs? Nope. “bloated spending”? It’s not that much, really. Raise taxes? Nope. Do nothing? US gets downgraded – debt/deficit balloons..
    More employment/tax revenue? Jobs are shipped away or technology took them.

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