America’s Welfare State is on Borrowed Time (2021)
America’s Welfare State is on Borrowed Time
The Wall Street Journal; May 6, 2021
Has anyone noticed that the president has proposed increasing federal spending by nearly $1 trillion a year, while promising that 98% of Americans will pay nothing for it? The very idea would have seemed mad to every previous generation of Americans. Today it is considered conventional.
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The Rise and Rise of Deficit Government (2021)
The Rise and Rise of Deficit Government
Law & Liberty; May 5, 2021
The U.S. federal government followed a balanced-budget policy for 181 years, from its first year of operations in 1789 through 1969. That policy had three components: (1) regular operations were paid for with current revenues from taxes and tariffs; (2) borrowing was reserved for wars, other emergencies such as economic depressions, and investments in national development (territory, harbors, transportation); and (3) debts accumulated for those purposes were paid down by subsequent budget surpluses and economic growth. The policy was followed imperfectly but with impressive consistency. It was supported by a broad political consensus spanning Alexander Hamilton and Thomas Jefferson, Andrew Jackson and Woodrow Wilson, Herbert Hoover and FDR.
Beginning in 1970, the federal government shifted to a budget-deficit policy. A significant and growing share of regular operations was paid for with borrowed funds during good times and bad, in years of peace and prosperity as well as war and emergency. . . .
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Welfare and Debt—A Moynihanian Assessment (2019)
Welfare and Debt—A Moynihanian Assessment
The American Interest, April 23, 2019
“The Moral Dimensions of a Two Trillion Dollar Debt” is the title of an address delivered a third of a century ago, by Senator Daniel Patrick Moynihan, on January 27, 1986, at St. Paul’s Episcopal Church in Rochester, New York. Pat began with the theological ambivalence toward the activity of lending, investment, and accumulation that we now call capitalism. The Hebrew Bible’s injunction pointed one way—Thou shalt not give [thy brother] thy money upon interest, not give him thy victuals upon increase. The New Testament’s parable of the talents pointed another—”the good servant puts his capital to work and it increases.” The Catholic Church, he observed, no doubt with a twinkle in his eye, had tended to view capitalism as a “Protestant heresy.” On this point, Pat sided with the heretics assembled before him: Christianity teaches the virtue of self-denial and “warns against the terrible cost of discounting future rewards in favor of present ones.”
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Congress and the Dilemma of Fiscal Restraint (2017)
Congress and the Dilemma of Fiscal Restraint
Working Paper—Synoptic Draft, 2017
In modern times—roughly, since the late 1960s—Congresses have grown lax about their constitutional powers. They have delegated broad lawmaking discretion to regulatory and administrative agencies, and have done so in such profusion that the executive branch has become the nation’s primary source of law. In recent years, they have permitted presidents to seize additional legislative powers unilaterally (George W. Bush occasionally, Barack Obama frequently). Most striking of all, they have become nonchalant about their financial and budgetary powers—failing to pass annual budgets and appropriations bills, permitting their spending and monetary powers to atrophy, and even delegating taxing and borrowing authority to the executive. This paper attempts to explain that development.
There are several reasons to think that Congress would hold its financial powers close, and exercise them diligently, even or especially at a time of regulatory delegation and executive expansion. Taxing and spending present legislators with unique risks and opportunities. They are more potent than regulation as a constitutional matter;1 they extract and dispense resources directly in the government’s name; and they are more likely to be subjects of electoral contention. And, within the government itself, taxing and spending constitute Congress’s “power of the purse”—its ultimate weapon in competition with the executive branch. Political scientists theorize that Congress delegates sweeping discretion to executive agencies in order to avoid making controversial policy choices—and then controls the exercise of that discretion through appropriations levels and riders.2 But in practice Congress has been handing over its purse strings along with its lawmaking authorities.
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Our Democratic Debt (2014)
Our Democratic Debt
National Review, July 21, 2014
The federal government’s total debt is approaching $18 trillion. Its operating deficit was more than $1 trillion in each of the years 2009–12 and $680 billion in 2013. These numbers are too immense and unfamiliar to be useful. (A trillion is not yet even a standard measure—it means a thousand times a billion in the United States and a million times a billion in much of Europe.) Better to convert them to portions of the economy and government, so that the current debt is 103 percent of U.S. gross domestic product and the 2013 deficit was 4 percent of GDP and 20 percent of federal spending. These ratios put the dollar figures in perspective. The GDP ratio shows the burden of the debt (a larger economy can afford to borrow more, just as a higher-income family can afford a larger home mortgage), and the spending ratio shows how much of our government we are declining to pay for with our taxes. And they facilitate comparisons over time (effectively adjusting for inflation) and across nations with larger and smaller economies. But ratios are still just numbers: They need interpretation to tell us what they mean for our personal circumstances and those of our government.
We are not getting much help from public officials and policy experts, whose interpretations tend to be abstract and amorphous. The consensus formulation, embraced by President Obama, Speaker of the House Boehner, and the Congressional Budget Office, among many others, is that our current debt and deficits are “unsustainable.” This suggests that they are tolerable for the time being but will need to be reduced by some degree sometime in the future. Such a judgment has the advantage of sounding responsible and admonitory while suiting the short time horizons of democratic politicians and their preoccupation with immediate electoral exigencies.
And they have a point: Why not kick this can down the road? Experts have been warning for decades that our debt and deficits are unsustainable, yet here we are today, out and about and being sustained by an economy and government that continue to chug along even though the debt is bigger than ever. The only debt crises most of us have noticed have been the periodic impasses between the president and Congress over the debt ceiling—the statutory mechanism for enforcing Congress’s second enumerated power (Article I, Section 8 of the Constitution), which is to “borrow money on the credit of the United States.” Recurring annual deficits have obliged the Treasury Department to ask Congress to raise the ceiling a dozen times since 2000, and Congress is always reluctant to recognize the gap between spending and tax revenues that its policies have created. The most recent stand-offs threatened, in July 2011, default on U.S. debt-service payments or drastic cuts in government spending, and then produced a two-week government shutdown in October 2013. But Congress invariably resolves these crises by raising the ceiling to make room for additional borrowing, whereupon everyone sighs in relief and gets back to business.
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America’s Deficit-Attention Disorder (2014)
America’s Deficit-Attention Disorder
Real Clear Markets, July 10, 2014
The federal debt was regularly in the news from the summer of 2011, when the arriviste tea-party Republicans refused to vote for a higher debt ceiling unless the Obama administration agreed to spending reductions, until the end of 2013, when another debt-ceiling impasse closed the government for two weeks before the House capitulated.
The subject has since vanished from public debate. One reason, no doubt, is that the results of the debt brinkmanship of 2011-2013 were so pathetic. The ceiling was increased by more than $3 trillion, all of it promptly borrowed and spent, in exchange for $1 trillion in avowed spending “sequesters” spread out through 2021, which are already being relaxed. Also a tax increase on high-income taxpayers is said to be worth $600 billion through 2021. But the debt will grow by $6 trillion during this period. The CBO’s ten- and 25-year debt projections have continued to deteriorate.
But the most important reason for the disappearing debt issue is that Congress, in re-opening the government last October, did not raise the debt ceiling but rather suspended it—permitting the Treasury to borrow at will through March 2014, now extended through March 2015. If Congress had raised the ceiling, it would have had to bust the $18 trillion barrier just to get passed the 2014 elections. The debt will cross that barrier later this summer, and incumbents would have been held accountable for it in November.
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This Federal Shutdown Is Much More Serious Than The Others (2013)
This Federal Shutdown Is Much More Serious Than The Others
Forbes, October 6, 2013
This month’s government shutdown is more serious than earlier budget impasses. The two sides are unusually adamant. The rhetoric, especially that of President Obama and his aides, has been astonishingly nasty. And we are just warming up for riskier brinksmanship over the debt limit.
It is tempting to fix blame on the deficiencies of our political leaders (I could do so with gusto) and to assure ourselves that this too shall pass. But the increasing frequency and gravity of our budget and debt imbroglios suggests more fundamental causes. I believe that today’s turmoil is the culmination of three institutional problems that have been building for several decades.
The first is the unprecedented concentration of power in the executive branch. The president and the executive agencies have acquired the ability to act unilaterally across broad swaths of national policy, making law by regulation, administration, and sheer declaration. The Obama administration’s resort to several extra-legal maneuvers in feathering out the Affordable Care Act is only the most recent example; the President’s bold position that Congress may not even match him in revising the statute’s requirements was a key incitement to last week’s shutdown. Another example is the administration’s pursuit of greenhouse gas controls by regulation after Congress declined to do so after extended consideration. The IRS scandals are a conspicuous instance of the outright corruption that invariably accompanies the concentration of power.
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The Bucks Start Here (2013)
The Bucks Start Here
Claremont Review of Books, Summer 2013
The growth of executive government and the growth of government debt are both highly worrisome to many people. They are, however, usually thought of as separate problems, arising from separate government functions. On the one hand, the executive branch operates mainly through regulation: agencies issue rules to private parties, telling them how to design their products, keep their books, set their prices, withhold their crops from market, recruit women for their sports teams, manage their trash. Government borrowing, on the other hand, is a method of public finance: treasury departments market bonds to raise funds for spending in excess of tax revenues — because the government is making a long-term investment, because it is facing an emergency, or just because it has overpromised and wants to keep the spigots open. Regulation imposes costs and trouble on particular firms and individuals, and is subject to a large body of law. Borrowing is diffuse and non-justiciable (until sovereign defaults end up in court). Excessive regulation threatens liberty; excessive debt threatens wealth. A unified field theory seems unlikely.
And yet the two problems are, I believe, deeply related. A clue is their scope and trajectory. The accumulation of wide policy discretion in the executive, and the accumulation of high levels of public debt, are the overarching phenomena of contemporary democracy. There are exceptions — executive regulation has grown apace in Sweden and Canada, but both nations have taken serious steps to control their debts and their fiscal circumstances are relatively tidy. But the sweep of the two developments across the advanced, wealthy democracies is arresting, especially in the United States and Europe, which will be my focus.
In America the two phenomena – the modern executive state and the normalization of budget deficits — emerged and grew simultaneously. It was in the early 1970s that Congress established numerous new agencies, such as the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), and the National Highway Traffic Safety Administration (NHTSA), that exercised essentially legislative power over broad swaths of the economy. These agencies made law in executive rather than legislative fashion: while the earlier, Progressive and New Deal regulatory agencies had adjudicated particular disputes by majority-vote decision of a bipartisan commission (such as the Securities and Exchange Commission), the new agencies issued general rules decided by a single administrator. Measured by number and length of rules and their economic effects, federal regulation grew very rapidly in the 1970s’ and continued to do so through the next three decades.
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The Real Cliff (2012)
The Real Cliff
The Weekly Standard, December 24, 2012
It is important to understand that the fiscal cliff is a charade. There are, to be sure, many conscientious debt reformers working to avert our proclaimed year-end epic fall—along with many cynics who are using the occasion to advance pet projects that will make the debt problem worse. But all concerned are working within a fiscal system that has become seriously pathological. The cliff is the latest expression of that pathology.
Just last year, the president and Congress agreed by statute to (a) increase the federal government’s public debt by more than $2 trillion (up to $16.4 trillion) and (b) begin reducing annual federal spending by less than one-tenth that amount starting in 2013. A variety of temporary tax reductions, aimed at spurring recovery from the Great Recession, were also scheduled to expire in 2013. Now that the new debt has been borrowed and spent, the prospect of actually reducing our annual $1 trillion deficits by a significant amount is regarded by all sensible people as a catastrophe that must be avoided at all costs.
And what is to be done to stop the spending cuts and tax increases? This month’s partisan positioning over raising taxes on the wealthy masks a consensus, embraced by the leadership of both parties, on two essential principles of cliff-avoidance. First, the vast majority of Americans who are middle class must be spared any clear-and-present impositions: Their direct income taxes must not be increased, and their Social Security and Medicare benefits must not be reduced any time soon—meaning that any reductions will be as contingent, and possibly ephemeral, as last year’s debt-reduction accord. Second, the federal debt must be immediately increased by yet another $2-3 trillion, with further increases of equal magnitude certain to follow.
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Debt and Democracy (2012)
Debt and Democracy
Legatum Institute, May 21, 2012
In the debates surrounding today’s sovereign debt problems, many politicians and pundits, including European socialist, profess that (a) government debt is a bad thing and balanced budgets should be our goal, but (b) for the time being, we urgently need to defer that goal or to move further away from it. It is very confusing to speak of a goal that we should not pursue, and of a bad thing that we should pursue instead. Perhaps it would be more productive to try to specify when debt is good and when it is bad. In my what follows I will describe three virtues of debt in the private economy, then extend them to the more problematic public sphere and try to see where things have gone awry. An important theme of my remarks is that debt has become an important means of pleasing and placating voters while avoiding democratic accountability, and that the leading efforts to resolve our debt problems are seeking above all to preserve this electoral project.
The first function of debt is investment—to bridge the span of time between a plausible idea and its productive realization. The social utility of debt must go all the way back to the discovery of the social surplus, when agriculture began to replace hunting and gathering. For humans to progress from a world where everyone had to kill his lunch every day, someone had to be spotted many lunches in order to try his hand at cultivating the soil. One of the earliest laws regulating debt was Deuteronomy’s prohibition of charging interest on loans of victuals to one’s brother.
Debt is not only the original but also the most entrepreneurial form of finance. Many of history’s greatest creative geniuses, from Mozart to James Watt to Sam Walton, were big deficit spenders, chronically in debt. Not because they were profligate but because they were consumed by ideas with no immediate return. Artists and authors, if they are successful, will in time find patrons and audiences, and entrepreneurs will find shareholders and customers. But at the start, when their ambitions may be so speculative that they themselves cannot describe them with any coherence, or so revolutionary that they sound like cranks, they are usually confined to the microfinance of loans from friends and relatives. And many find it advantageous to borrow even as they prosper.
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