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Chapter 25: Deficit Spending: What’s wrong & how to fix it

May 17, 2012

“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.” —Attributed to Cicero, 55 BC

“Imagine this family budget: Last year, you earned $24,700. But you spent $37,900, incurring $13,300 in debt, and you were already $153,500 in debt. So you say, “I promise I’ll spend $300 less this year!” Anyone can see that your cutback is pathetic and that you need to spend much less. Yet if you add eight zeroes, that’s America’s budget.” —American author and columnist John Stossel 

What’s wrong with deficit spending

  • Deficits matter. The experts have claimed that government deficits don’t matter. This is self-serving hogwash from the elite political class. Every citizen with an ounce of common sense knows that you can’t spend more than you earn and that you can borrow money only if you will be able to repay it. Only those in government—blinded by their ability to print money, devalue the dollar with inflation, and still get reelected—haven’t grasped these elementary facts.
  • Federal spending is out of control. In the Great Depression year of 1934, federal spending as a percentage of the Gross National Product (GNP) topped 10 percent for the first time. This was mainly because of President Roosevelt’s well-intentioned but misguided New Deal economic controls, regulations, and spending—which ended up deepening and prolonging the depression. Federal spending reached 12 percent of the GNP during World War II. Today federal spending is approaching 25 percent of the GNP—and Democrats and Republicans are resisting efforts to reduce spending significantly.
  • Federal inefficiency. The federal government doesn’t do anything very well or very efficiently. It takes money out of the economy via taxation, ships it to Washington, spends a lot of it on inefficient bureaucracies, and then sends what’s left back to other governments with so many mandates that more money is wasted before anything actually happens. State and local governments would do a much better job filling state and local needs without this kind of “help” from the federal government. (See more about this in the “Government” and “Poverty” chapters.)
  • Government is the problem. Not only is government spending not the solution to our problems, it is the cause of many of them. As discussed in the “Government” chapter, even well-intentioned government programs are often counterproductive because politicians and bureaucrats can’t anticipate—or don’t understand—the unintended consequences of their actions.
  • Government dependency. Because America has been so successful, citizens increasingly feel entitled to America’s blessings without doing anything to earn them. A growing number of voters are dependent on the government and believe it is the government’s job to take care of them. This is an addiction and one that won’t be easy to rehab.
  • Political promises. When people expect the government to take care of them, they tend to elect the politicians who make the biggest promises. Those politicians surround themselves with staffers (paid by taxpayers) whose only goal is to ensure the reelection of their boss. Voters like to have things provided to them free, so politicians offer more government services and lower taxes: a fatal combination for any nation.
  • Taxpayers are victims. The requirement that companies seeking government contracts must (in effect) pay union wages and often follow union rules shuts out the more flexible and more efficient smaller businesses—and taxpayers therefore pay more than is necessary for almost everything government does. (See the “Big Labor” chapter for more about this issue.)
  • Government can’t create wealth. Regardless of the promises made by career politicians, government can’t create wealth. Government can take wealth from some citizens to give it to others, but doing so penalizes producers, makes non-producers increasingly dependent on the government, encourages class warfare, and leads to eventual collapse.
  • Political gridlock. As usual, both parties are wrong: Democrats for avoiding spending reform (to please their Big Labor supporters) and Republicans for avoiding tax reform (to please their Big Business supporters). In addition, both parties have tolerated deficit spending and irresponsible borrowing.

How to fix our deficit spending 

  • Get rid of career politicians. Capping their pay and eliminating their pensions would be good first steps. (See the “Career Politicians” chapter for more details about this proposal.)
  • Limit the roles of the federal government. Hold the federal government accountable for doing a few things well instead of trying to do everything (and doing everything poorly). (See more about this in the “Government” chapter.)
  • Stop federal funding for state and local projects. It makes no sense for the federal government to dole out money for state and local projects. The federal government should provide funding only for legitimate federal needs, just as state and local governments should provide funding only for legitimate state and local needs. Let the people closest to those needs make the decisions. (See “Government” for more information.)
  • Stop welfare for businesses. As explained in the chapters “Big Business” and “Taxes,” phase out tax loopholes and government payments to businesses.
  • Cut the costs of crime, courts, and prisons. As explained in the “Crime, Courts, and Prisons” chapter, legalize drug use and victimless crimes, rein in greedy lawyers, streamline courts, and make prisoners pay their own way.
  • Get control of entitlements: As explained in the “Entitlements” chapter, gradually increase the age at which people can start drawing Social Security and Medicare benefits, and give people a chance to opt out of the benefits.
  • Get the government out of the insurance business. Whenever the government guarantees or insures anything, it’s almost always because no sane person or business will take the risk. (See more about this point in the “Government” chapter.)
  • Fund students instead of bureaucracies. With public education, we spend a lot of money for dismal results. Get government out of the way, provide funding to students instead of bureaucrats, and let consumers make their own choices in a free market. (See more about this in the “Education.”)
  • Help the poor instead of enslaving them. Since the federal government has made poverty more widespread and enduring, all federal welfare programs should be phased out and replaced by a negative income tax. (See the “Poverty” chapter for more details about how the negative income tax would work.)
  • Government contract reform. Government bids should be subject to free market competition, without union-supported politicians saddling taxpayers with the higher cost of government-mandated union wages. (Also see the “Big Labor” chapter.)
  • Stop being the world’s bank and policeman. Stop trying to buy friends with foreign aid (especially to corrupt governments), let other nations fight their own battles without putting our boots on their streets, use our technology instead of our troops to defend ourselves and our friends, maintain a strong (but tactical and efficient) military, and react intelligently to the threat of terrorism. (Also see the “National Security” chapter.)

“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” —Tenth Amendment to the US Constitution

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