Fiscal Responsibility
The Wall Street Journal reports that in response to Obama’s stimulus plans, Senate Republicans are trying to position themselves as “guardians against excessive spending “:
Senate Minority Leader Mitch McConnell (R., Ky.) in a statement Monday supported the idea of using federal spending to boost the economy. But he warned that the price tag, which could approach $800 billion over two years, shouldn’t become an excuse for funding undeserving projects.
“We should have a simple test: Will the yet-unwritten, reportedly trillion-dollar spending bill really create jobs and grow the economy — or will it simply create more government spending, more bureaucrats and deeper deficits?” Mr. McConnell said.
Because I’m in a “numbers” kind of mood today, here’s another graph (if you’re curious, or don’t trust my numbers, I found the data here):
Every time a Republican rails against Democrats for “excessive spending,” you should look at this graph. As the graph shows, over the last twenty-odd years, the federal government ran its largest deficits during Republican administrations; indeed, we have our deepest deficits during the 2002-2006 period, when Republicans controlled the White House and Congress. Now, I’m not a deficit hawk; as long as they aren’t excessive, I don’t see much of a problem with running budget deficits, especially since they’re basically necessary if you’re interested in building and maintaining a strong safety net (which I am). I do however, have a problem with Republicans claiming the mantle “fiscal responsibility.” A quick glance at recent history shows that that simply isn’t the case; since Reagan, Republicans have reduced federal receipts, increased spending and under Bush II, vastly expanded the size of government. If anything, Mitch McConnell should be mocked – not taken seriously – when he warns against Democratic “excessive spending.”
Something’s gotta give, you’re right. However, the only worry I have about Democrats is they love to raise taxes. I feel like I am already paying enough of them as it is.
Deficits do matter. So, I guess it depends on what you define as excessive. Deficits extending on ad-infinitum means ever increasing public debt which means ever increasing interest payments on that debt. As of FY07, we spent $237 billion on interest payments. That was more than the total appropriation for the Department of Agriculture, Dept of Education, Homeland Security, and Housing and Urban Development combined. And it is $47 billion more than we spent on Medicaid. As a note, this number is based on the historic tables published by CBO, GPO, and OMB. When you look at the Treasury’s reports they show total accrued interest which includes intergovernmental interest which at the budget level they exclude as if we didn’t have to pay that money back in a future year.
Also, interest payments on public debt mostly represent a wealth transfer from lower income quintiles to higher income quintiles. Subtracting out the portion of payments that go to state & local government plus pensions, and the rest goes to mutual funds, bank deposits, insurance companies, and private investors (excluding foreign held debt). Wealth being primarily owned by the top quintile and debt instruments being a component of wealth ends up as a public transfer of tax revenue to the top income bracket.
Then you have the 53% of the federal debt held by the public which is held by foreign central banks, foreign private financial institutions, and foreign individuals. The largest of the foreign holders are the central banks of China and Japan along with their private investors. Following the UK and Caribbean Banking Centers (i.e., tax havens for the rich and money laundering centers for criminals), the fifth largest holders are Oil Exporting Countries as a group. If you include Russia with them, that moves them up to number 4. So the remaining half of interest that is not going to the upper quintile of earners in the states is adding to the already large wealth transfer from the US to Asia and Oil Exporters.
I agree we need social safety nets, but they cannot be financed indefinitely from increased public debt. We do need a stimulus package to help our economy recover, but we don’t need to go wild with that either. While it may be hypocritical for Senator McConnell (he of much pork spending) to school anyone on fiscal responsibility, this is a time when I think the minority party can serve a useful function in helping temper the desire of some to go overboard and make this a big cash cow to the concrete and asphalt companies of America.
Last, I would point out that fiscal irresponsibility is the shared fault of both parties. Reagan and Bush I dealt with Democratic majorities in Congress. And it is the House that has the power of the purse strings. It was Democrats in the House that sponsored the second round of Reagan’s tax cuts in ‘86. And if you look at the deficit as a percent of GDP, the highest percentage in the last 28 years occurred when Reagan was president and Democrats controlled the House. So, leaving Democrats out of the picture I think misstates their contribution to the problem.
And just as a final note, I don’t whether a stimulus package is even going to help much. The domestic credit market is tapped out. We were already at the point where every additional dollar of borrowing came from a foreign source. Consumers, businesses, and the government are swimming in debt. We are all overleveraged. If we do the right thing and de-leverage, that will mean a much longer term contraction that road building projects can’t overcome.
By the way, did you make this graph using Excel?