What happened to fiscal conservatives?
The dirty not-much-of-a-secret in Washington isn’t even debatable anymore: Republicans don’t actually care about debt and deficits. Since they took control of government in 2016, they have increased the national debt by more than $2 trillion to an all-time high of $22 trillion. After years of railing against Obama and the Democrats for big spending packages, Republicans have quickly changed their tune and followed suit. They’ve liberally sprinkled tax dollars against one political talking point after another, with little concern as to the effectiveness of each investment. And the White House’s recent budget proposal, with a projected deficit of $1.1 trillion, doesn’t suggest a seriousness about turning off the spigot any time soon. Fiscal conservatives, to the extent they still exist, should be disgusted.
What have Republicans spent your money on? Let’s review. Trump and the Republican Congress kicked things off in May 2017 by passing a $1 trillion omnibus spending package that many criticized as overweight. The spending binge was followed by a December tax cut which recently had its deficit impact doubled given less-than-anticipated federal revenues. The Tax Foundation now expects the Trump Tax Cuts to add $900 billion to the deficit over the next ten years, even after accounting for offsetting economic growth that has been hamstrung by the trade war. A second spending binge followed in March 2018 to the tune of $1.3 trillion. All told, that’s more than $3 trillion in new debt over just two years.
Then, there was the wall — a suspect investment that Congress did not agree to fund. Despite widespread questions about the effectiveness of a physical structure along the length of the border relative to other “smart wall” technologies, Trump barreled forward with his spend-happy ways and declared a national emergency to appropriate another $6 billion for a massive government construction project. If you want to know how good of a construction manager the federal government can be, we have a recent example: President Obama’s infamous “shovel-ready construction projects” in the wake of the $800 billion American Recovery and Reinvestment Act — and we all know how those turned out. They didn’t.
There were also the tariffs, the subsidies, and the selective tax breaks for favored companies. A recent study estimates that the trade war is costing the U.S. economy $1.4 billion in dead-weight loss every month — even after accounting for incremental federal revenue from duties. Alongside the tariff, Trump has launched a $12 billion subsidy program for farmers that hasn’t done much to soften the sting. Then there were the smaller things, like the tax break for Carrier that failed to accomplish anything and the much-heralded $4 billion Foxconn handout that went nowhere. Republicans just can’t seem to take the hint that government meddling in the economy is both expensive and ineffective. But, Trump seems to like it, so… everyone shut up and smile!
Given the sorry state of fiscal conservatism on the right, one would be forgiven for casting their eyes to the left. But, don’t expect to see much. Democrats seem even less concerned about the debt. So far, the early 2020 primary seems to be a competition to see who can propose the most costly set of federal programs without paying for them. The grab bag is endless: a $25 trillion Medicare for All program, a $1 trillion infrastructure package, billions more for a new student loan forgiveness program, free community college, a pie-in-the-sky $50 trillion Green New Deal. The list goes on and on. Many haven’t bothered to explain how they would pay for all of this, either — while the few who have dramatically overestimate the ability of wealthy Americans to foot such a bill. For example, even if the Democrats passed Elizabeth Warren’s “wealth tax,” which takes 2–3 percent of the wealthy’s assets each year, the resulting haul would be less than $3 trillion over the next ten years and wouldn’t make for even a down payment on the Democrats’ wish list.
“So what?” cries Paul Krugman. The United States is the world’s reserve currency and money is cheap — we should borrow even more now while rates are low and the terms are favorable. This is like telling an alcoholic to buy all the liquor they can because the store down the street just announced a big sale. That’s not how this should work — and it presumes that the federal government will one day just snap out of its spending addiction once the rent comes due.
In fact, large debt loads on unsustainable growth trajectories do catch up with their governments in the end. One doesn’t have to look hard for examples. Italy recently succumbed to its third recession in a decade as it struggles to convince investors to take its populist government seriously despite a debt-to-GDP ratio of 130%. Greece recently confronted its own crisis that, after years of external negotiation and internal turmoil, resulted in the biggest financial bail-out of a bankrupt nation in history.
Some think that the United States could never face these types of existential issues given its control of the world’s reserve currency and its centrality to the global economic system. But, even these advantages have their limits. Plus, sizable government debt crowds out important public investments in things like education, R&D, and infrastructure that will be needed as we adapt our economy to the 21st century. Just like a family managing its household pocketbook, a nation saddled with debt has less to invest in its future.
Fiscal conservatives need to wake up and get back at the wheel. There are plenty of ways to start bending the debt curve. For one, we could re-address our healthcare crisis in a way that actually reduces long-term outlays. We could also get serious about our Social Security programs and have a realistic conversation about what is and isn’t possible. Other areas of the budget deserve scrutiny, too. We need an all-of-the-above approach with no sacred cows — along with a fresh set of eyes on our still-broken tax code.
The United States desperately needs at least one Party that is committed to balanced budgets and living within our means. If not, we can expect to get more of what we have now: ever-increasing deficits, record-high debt, and no serious plan to get either under control.