Skip to comments.Let's Limit Spending
Posted on 02/07/2018 5:24:38 AM PST by Kaslin
Some people have called for a balanced budget amendment to our Constitution as a means of reining in a big-spending Congress. That's a misguided vision, for the simple reason that in any real economic sense, as opposed to an accounting sense, the federal budget is always balanced. The value of what we produced in 2017 -- our gross domestic product -- totaled about $19 trillion. If the Congress spent $4 trillion of the $19 trillion that we produced, unless you believe in Santa Claus, you know that Congress must force us to spend $4 trillion less privately.
Taxing us is one way that Congress can do that. But federal revenue estimates for 2017 are about $3.5 trillion, leaving an accounting deficit of about $500 billion. So taxes are not enough to cover Congress' spending. Another way Congress can get us to spend less privately is to enter the bond market. It can borrow. Borrowing forces us to spend less privately, and it drives up interest rates and crowds out private investment. Finally, the most dishonest way to get us to spend less is to inflate our currency. Higher prices for goods and services reduce our real spending.
The bottom line is the federal budget is always balanced in any real economic sense. For those enamored of a balanced budget amendment, think about the following. Would we have greater personal liberty under a balanced federal budget with Congress spending $4 trillion and taxing us $4 trillion, or would we be freer under an unbalanced federal budget with Congress spending $2 trillion and taxing us $1 trillion? I'd prefer the unbalanced budget. The true measure of government's impact on our lives is government spending, not government taxing.
Tax revenue is not our problem. The federal government has collected nearly 20 percent of the nation's gross domestic product almost every year since 1960. Federal spending has exceeded 20 percent of the GDP for most of that period. Because federal spending is the problem, that's where our focus should be. Cutting spending is politically challenging. Every spending constituency sees what it gets from government as vital, whether it be Social Security, Medicare and Medicaid recipients or farmers, poor people, educators or the military. It's easy for members of Congress to say yes to these spending constituencies, because whether it's Democrats or Republicans in control, they don't face a hard and fast bottom line.
The nation needs a constitutional amendment that limits congressional spending to a fixed fraction, say 20 percent, of the GDP. It might stipulate that the limit could be exceeded only if the president declared a state of emergency and two-thirds of both houses of Congress voted to approve the spending. By the way, the Founding Fathers would be horrified by today's congressional spending. From 1787 to the 1920s, except in wartime, federal government spending never exceeded 4 percent of our GDP.
During the early '80s, I was a member of the National Tax Limitation Committee. Our distinguished blue-ribbon drafting committee included its founder, Lew Uhler, plus notables such as Milton Friedman, James Buchanan, Paul McCracken, Bill Niskanen, Craig Stubblebine, Robert Bork, Aaron Wildavsky, Robert Nisbet and Robert Carleson. The U.S. Senate passed our proposed balanced budget/spending limitation amendment to the U.S. Constitution on Aug. 4, 1982, by a bipartisan vote of 69-31, surpassing the two-thirds requirement by two votes. In the House of Representatives, the amendment was approved by a bipartisan majority (236-187), but it did not meet the two-thirds vote required by Article 5 of the Constitution. The amendment can be found in Milton and Rose Friedman's "Tyranny of the Status Quo" or the appendix of their "Free to Choose."
During an interview about the proposed amendment, a reporter asked why I disagreed with the committee and called for a limit of 10 percent of GDP on federal spending. I told him that if 10 percent is good enough for the Baptist Church, it ought to be good enough for the U.S. Congress.
Very well said Professor Williams.
What Williams doesn’t discuss is that the total GDP is somewhat controlled by demand, not supply.
For example, if more customers wanted to buy cars and had money, then GM and Ford could produce more cars, no problem. The GDP would go up, because more cars are being produced.
Now if the government is spending money, does this demand increase the overall GDP? If so, then private consumption does not have to be reduced as much as you might suppose. A modern, high-tech economy can produce more at a low marginal cost.
Under a balanced budget amendment, the Republicans will become the tax collectors to fund the Democrats’ spending programs. Also, there times when it makes sense for governments to borrow money, i.e., productive capital investments, emergencies, etc.
Very good article and sound policy with absolutely no chance of being enacted. The Republicans gave up on spending restraint under George Bush and Trump isn’t bringing it back. We’ll have spending restraint when our debt is so massive that no one wants to hold it anymore and we’re one step away from riots and civil war.
Governemt spending deceases the amount that private people have to spend. So if the government is spending money that results in cars being purchased its only because they money was taken from someone which results in less cars being purchased.
TAKE and SPEND. There is no free lunch or positive economic multiplier from governemt spending.
Start by getting rid of the Dept of Education and many others.
Is baseline budgeting still being used?
If so, repeal that. That could be done right away, no constitutional convention required.
A few thoughts:
1) Unlike when I grew up when private industry was big, the government now days IS the economy. Private industry is relatively small. The government is involved in EVERYTHING..
2) When/if the govt shrinks, it will have large temporary impact. The best scenario is static govt, so private can catch up?
3) Remember past stimulus plans?
Bushes tax check sent to us, we decided where to spend
Obama shovel ready where govt decided where to spend
Trumps tax cut where we decide where to spend
4) Yes the money always gets spent. Even all the dollars we send to mexico and china eventually come back here to be spend. The question is when and where will it be spent?
Remember china got our crappy dollars and we got their crappy stuff, who won?
5) I would add that many here should study and understand the philosophy of “The Wealth of Nations” by Adam smith. What is wealth? Thinking time is required.
“if 10 percent is good enough for the Baptist Church, it ought to be good enough for the U.S. Congress.”
Very well said Professor Williams.
But, as Williams points out, not all of the money through government spending is raised through taxation. We’re running a big deficit.
If 10% is good enough for Jesus it ought to be enough for Uncle Sam. https://youtu.be/CQc_WPUCE-o
Spending and revenue generation and should handled as separate concepts.
Obama’s trillion dollar spending spree was graft money that did not benefit the economy. Trump’s infrastructure trillion dollar proposal will leverage local and private spending, create tens of thousands of jobs and boost the private sector.
That is well put.
All of it belongs to God. He places the earth in our hands as stewards.
The government pretends to own everything and keeps as much as possible for its own devices.