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Lost Issue: If I Were The President of the United States pt. 4

My Thoughts On: November 25th, 2003

Part of a discontinued series, I've decided to save these on my personal site for posterity. The DEE's scope change when I decided to start writing the Little Black Book of Bills. So I'm bumping these for a new series that will get straight into the grit along with my book's growth.

(The Deconstruction Era Essays are a series of Essays based on discussing reforms of the current U.S. government to be a more classically Liberal free-market body - the DEE provides a platform for thought into the political hypothetical)

In the first parts of the Deconstruction Era Essays, I discussed some of the basic things to tackle in a major U.S. political reform, and the attitudes required. I'm coming back now, to discuss more literal policy making, trying my best to tackle some of the ideas behind a balanced budget amendment.

The benefit of balancing a budget is that we do not curtail national debt, which as it stands, is nearly 7 trillion dollars. Debt is created when the government borrows money for it's budget overages - usually deficit spending is encouraged by those who want taxes cut but don't want to stop spending money (Republicans). Since Reagan's administration, the National Debt has skyrocketed, the post Cold War deficit being 5 trillion, now becoming 7 trillion.

What happens if the deficit isn't paid? Like any other loan, the national debt accumulates interest - and interest is cumulative (increases exponentially and compounds). The more interest we must pay on the national debt, the less we are able to spend elsewhere. Right now, roughly a quarter of the income tax goes directly to interest payments on the national debt. Another thing that happens with debts over time is inflation. As the money loses value, and prices rise (inflation has steadily increased, slowly, since abandoment of the gold standard) the money adjustment of the final debt grows and grows. So these are two factors against time when it comes to the national debt.

Ultimately, the national debt question will come down to two answers. One, pay it off and balance the budget - as the nation has done many times before - only this time, under much steeper odds and much larger debts. Two, dishonor the debt over time, allow it to grow. Eventually, doing this would mean skyrocketing taxes, which would trigger an eventual overall decay of the market. If taxes don't go up, then the debt would rise so much that the interest payments trump legitimate government spending, in which case, the government would owe too many people to support itself. In normal financial terms, when a debt gets so high that the debt-bearer can't pay even the interest, it is called "bankruptcy". In the case of national bankruptcy elsewhere, the self-survival mechanisms of the government kick in and laws eventually become passed resolving the debts by force, basically meaning the disenfranchisement of millions of citizens, and investors abroad.

No matter how you go about it, the second path leads to an eventual and severe economic decline of our nation, into a deep, long-standing depression (probably with massive devaluations of the Dollar, making millions of Americans poor) - and the first path leads to government stability over the long haul, with the requirement that we crack down on the problem now before it gets worse.

The benefits of balancing the budget are typically not really realized by the general public, who by and large is not aware of the massive problems debt can cause. But the DEE isn't here to talk about the public's reaction, it's simply here to look at this problem from a Libertarian perspective, and try to find a legislative solution.

Basically, there is no part of our current government model that requires our federal government to be fiscally healthy. The government can use it's taxation powers and borrow the entire nation into an Argentina-sized economic grave. To stop this from happening, I would propose the best solution would be to require the government make balancing the budget a requirement - by drafting a balanced budget amendment to the Constitution.

Have you ever seen a Congressional budget proposal? You might have heard the budget, but a single, definitive and clear scope of it is not really ever provided. Right now our government spends about 2 trillion annually to fund it's various programs. There are normal budget items that we all think of when we think of government - the military, for instance, is a large chunk of our national budget. Health and Human Services almost equals the military. There are expenditures we don't typically think of, such as the Treasury Department expenses (which mostly handles the interest payments on our national debt), and the many small organizations and wings of government (the Department of Agriculture, Office of Personnel Management, Veteran Affairs, Department of Transporation, Department of Education, Housing and Urban Development, etc.). Yet more expenses are off-budget (not included on the national budgets but funded anyways), often giving decieving national projects of debt, perhaps the single largest off-budget item being Social Security payments (our single largest national expense).

For one, it's obvious that all off-budget items should always be included. If it's being funded by tax dollars, nothing besides sloth or fraud should keep it off the projected taxpayer budget. Secondly, the budget should be compiled in one place, annually, in a way that is easy for political pundits and the public alike to understand the scope of our spending.

Criticism against balancing the budget often centers on the knowledge that in an economic downturn, a balanced budget will always result in a weakened state of government finance, which would result in government's need to increase taxes or cut spending to adapt to the higher costs of the downturn economy and the lower tax collected on those reduced gains. Both actions, cutting spending and increasing taxes, are percieved by the critics to negatively affect the state of the economy, thus exaggerating the problem by deepening the recession and thus causing even more reciprocated government finance problems. Criticism is correct in that it would likely give rise to government officials increasing taxes, but criticism fails in that it discounts that better financial management of the government by cutting spending is somehow negative to the economy. It would take a depression of absolutely despair purportions to reduce government, in a cutting-to-adapt budget, to it's vitals (to a state where it NEEDS to tax more to prevent total collapse). When government cuts a project that influences the private sector (IE, the nonmilitary, nonjudicial, and nonlegislative spending - the majority of all government spending) that provides investors the opportunity to invest more stock in that sector to fulfill the demand for the services the government dropped. This helps the economy in all cases, by encouraging investment. In many ways, it can be argued, cutting back government spending in hard times can reduce the term of recessions by increasing the rate at which the market gains new capital to meet the public demand.

A reduced government model (the one Libertarians endorse) would not have the huge problem of finding funding, since it's budget would be so noticeably smaller than the one we are used to. A balanced budget in a limited government model is feasable because even in the deepest recessions it should still be able to find adequate funding without any major increase in taxes, simply due to it's lower financial requirements. Economists who criticize balanced budgets often neglect the fact that governments with fewer financial requirements would be better off in recessions than their big-time deficit-spending perpetually growing counterparts. This of course, becomes an economic argument that smaller government is healthier not only to the government, but to the economy itself, since the smaller government is, the less recessions damage it, and the less it passes on any reciprocated losses to the public.

These criticisms just excuses deficit spending, they definitely do not justify it. Suggesting that by running a small deficit to get out of a recessionary period simply suggests that government spending is more important to ending recessions than the actions of the free market investors and the American credit we borrow from to deficit spend. This autocalibrated inclination of debt is also not self-resolving, and without a balanced budget provision, this "stabilizer" also perpetually moves the nation closer to total economic decay by allowing the national debt to continue unabated by not putting any specific prohibitions on it's growth. Trusting every generation of lawmaker not to overspend or miscalculate the scale of indebtedness of the United States is part of the mentality that gives us today's 7 trillion dollar debt, and our looming economic hardships if we cannot manage to scale back this massive debt.

For a balanced budget amendment to be effective, it should:

1. Present a model by which budgets are ratified and approved.

2. Not allow for deficits beyond a certain limit, to be identified by the scale of the budget requirements in (1).

3. Force Congress to place all taxpayer expenses on the budget, so no off-budget hidden expenses rack up unaccounted-for debts.

4. Force all items on the budget to be paid for within the budget's overall limits (no dynamically graduating taxes to adjust for overspenditures in certain areas of the budget).

5. Offer a buffer zone in the budget to offset any potential unforseen or unaccounted for expenses, in average years this should always resolve to a surplus.

6. It must present a system that not only deals with paying down the deficits of each cycle (should there be any), but the overall debt owed as well.

7. Create a model by which to refund surpluses, in the case that there are some, most typically in the form of tax cuts.

If it contains these 7 provisions, I would support it, and in this land of political hypothetical, if I were President, this would be one of my first major reforms. Please stick with me for some more Deconstruction Era Essays, as I plan to talk more about what I would do if "I Were The President of The United States", hopefully wrapping up the series soon so I can get the DEE back on general essays about the Deconstruction-Era politics and more thoughts from yours truly on the political hypothetical.

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