Deficit Mania

The 2010 election spawned the whole political movement of the Tea Party and now the interpretation is that these are strict constitutionalists with a strong aversion to big government and a desire to drastically cut spending.

In fact, the main stream Republicans can talk about little else than the deficit. I consider the Tea Party to be a radical subset of the Republicans, more conservative, more militant and insistent in their beliefs.

The Republican Political Playbook has for years used the phrase "Tax and Spend" as a way of tarring and feathering their opposition. Some within the Republican ranks will tell you that cutting taxes puts more money into the hands of people and makes them spend more and therefore stimulates the economy. This lately has translated into a full blown concern for the deficit, which is a different thing. Democrats may argue that money should be spent by government to stimulate the economy, and really they are doing just the same thing as Republicans. The only difference is that they are unbalancing the budget by adding debits while the Republicans are unbalancing the budget by reducing credits. Both are poor accountants.

The Republicans felt that deficit spending was justified to fight a war in Iraq (which some said was not justified in and of itself, much less not justified to spend that much money). The Democrats are willing to run deficits to pump money into the economy in order to shore up the unemployed or stimulate the economy. No one has ever been willing to actually address the deficit in a truly decisive manner. In the 1990s we had a surplus, partly because the end of the Cold War freed up a lot of money we had been pouring into the military, but also because the economy was cranking along nicely and energy prices were low. What did our friends in Congress argue about when there was a surplus? True to form, the Republicans argued about cutting taxes and the Democrats argued about increasing spending.

No one tried to pay down the debt. No one tried to adjust entitlements, which is best to do when times are robust than when times are lean.

Politicians are not fiscally responsible and they are not serious about wanting to be fiscally responsible. You don't diet by eating whatever you want and trying to exercise all day and you don't believe that a healthy way to lose weight is to starve yourself and never exert yourself. This doesn't make sense. You work on both ends of the equation in order to keep yourself healthy and on the right track.

It's the same way with the federal budget. We need modest tax increases coupled with modest spending cutbacks to meet in the middle in the least painful way. We need to do simple things to balance the books on entitlements, which means looking at each system and making them balanced. Social Security is easy to fix, you float the retirement age to the neutral revenue point. This would mean raising it up a few years now, but then letting it float so the change would be gradual. Eventually, the age would come back down when the baby boomers started to exit the system at the other end of retirement (how's that for a nice way to say it?).

I've heard many people argue that big government programs and federal spending were working to reverse the Great Depression and one year FDR went along with the deficit hawks and cut spending and the depression started to come back. People argue that WWII got us out of the depression and I have to ask, how is that not a program of unprecedented government spending, as well as high taxes? The Keynesian Economists swear that you need a lot of government spending to reverse economic downturns. While it's impossible to know if the bailouts and stimulus bills staved off utter collapse of the economy, it's hard to argue that they didn't work to improve things. People have largely forgotten that the bailout/stimulus spending began under a Republican administration and was widely supported by both sides initially. Now the Democrats are left holding the blame for rising the deficit and debt, but get no credit for saving the economy.

Many people believe that one role that big government does well is to fund basic research and development. Many assert that this spending is like an investment with very high payoffs in the future, which I believe, but find hard to prove. Some people think that private industry should be doing the research and development, but Corporate America is less and less willing to spend money on the future in this way any more. If big government really wants to put their thumb on one side of the scale to help tilt this, I wouldn't mind if we tied tax incentives for big corporations to the amount they pour into R&D (or hiring people and creating new jobs for that matter). If you're going to burden the taxpayers with an expense, at least pick something that will work like an investment and earn you something down the road.

I do not believe that the general public or our elected officials have a good idea of how to manage government spending and I see nothing on the horizon that will change that.