The Suicide of Supply-Side

Let me state for the record that I don't necessarily think that all debt is bad. Owning your own home or car usually means incurring large debt and society generally agrees that these are positive things. If you have the requisite income to service your debt, it can do any number of good things for you.

The kind of debt that I've spent my years of blogging yelling about is the kind incurred by various governments, specifically (although not exclusively) the U.S government's. That debt isn't easily serviceable because it's structural and largely based on sacrificing revenue, precisely what you don't want to do.

In his new book, former President Bush makes much of the fact that his spending and deficits weren't any greater than his immediate predecessors, which might actually be true. What he's not telling you is that the kind of debt that he and the current incumbent incurred is what is going to destroy America just as surely as it wiped out the Soviet Union.

What Bush essentially did was pass a giant new entitlement (Medicare Part D) while cutting the revenue needed to finance it with his 2001 and '03 tax cuts. Moreover, he cut that revenue while fighting two shooting wars - another example of which I've been unable to find in modern history - and not fundamentally reforming existing entitlements in a way that would make the system sustainable.

Yes, I know that Mr. Bush attempted Social Security "reform", but that was a political non-starter from the very beginning. The "private accounts" in question would only have constituted about 4% of payroll contributions, cost over a trillion dollars to phase in, and would have created an entire new and impossibly expensive potential bailout target in the event of an economic collapse like the one that struck in September of 2008. More importantly, like the tax cuts and Medicare D, Bush never bothered trying to find a way to actually pay for the program. It wasn't a plan for reform as much as it was yet another Republican exercise in wishful thinking.

Well, now that there's a Democrat in the White House, the GOP is pretending to be fiscally responsible again and the almost incandescently ignorant Tea Party is buttressing their fake resolve. It's great to watch if you know anything about anything, because it's so transparently wrong as to be laughable.

It's important to remember that the Tea Party Republicans are believers in supply-side economics, which has failed the three times it has been tried (1962, 1981 and 2001-'08). You can also include Obama's stimulus plan to the list, since over a third of it (about $300 billion) was tax cuts. Fully 100% of the time that the assertion that "tax cuts pay for themselves" was tested, it was disproven by increasingly large budget deficits.

This is where their thinking gets really good. They also want to pass a Balanced Budget Amendment to the Constitution. Ken Blackwell wrote a ridiculous article about this at one of the Brietbart websites that you folks have to read. Its silliness is such that you'll laugh and cry at the same time.

Of course, I know that a lot of you teenagers are lazy, so I'll quote Mr. Blackwell at length.

Most states require their elected officials to balance their budget each year, but no such requirement impedes the reckless spending of the United States federal government. A constitutional amendment would bar the federal government from spending more money than it brings in each year — and require a supermajority in order to raise taxes. This is not a radical idea, but the consequences of failing to enact such a measure cannot be overstated.

Fortunately, as evidenced by the Tea Party movement, there appears to finally be the political will required to get this done. Newly elected Republicans simply must realize they weren’t elected to merely “trim” spending or “slow down” the rate of government growth, but rather, to cut, de-authorize and balance the budget. (If they fail to grasp this fact, it will be a short and depressing two years).

It is also worth noting that the conservative movement is united behind this cause.

That's wrong on several counts.

Firstly, there's no unity about anything except the illusion that what they propose is going to restore fiscal sanity, and it won't. The British government under David Cameron is serious about reducing deficits, as has been evidenced by his recent budget. That budget enacts draconian spending cuts, fairly drastic tax increases and reduces eligibility for numerous entitlement programs. Nobody in the United States - not even in the Tea Party - has ever suggested anything like it.

Let's see how "united" the "conservative movement" is when people start doing the math and figuring out that balanced budgets are going to require deep Medicare cuts, an increase in the retirement age and a reduction in Social Security benefits ... just to start.

If most of the states have balanced budget amendments that are so effective, why are so many states going broke at such an alarming rate? Well, because most of them have giant loopholes written into their amendments that allow states to do things like exclude bond issues and "roll over" debt into another fiscal year. Sure, that will give you the illusion of solvency for a while, but it will catch up with you eventually. The Clinton welfare reform bill that eliminated AFDC also helped ruin the states, since it basically dumped the costs onto them. That made the federal budget look great. The states, not so much.

The financial crisis has galvanized the disparate elements of the conservative movement, just as the threat of Communism united the ”three legs” of the conservative movement during the Reagan years (like Communism, the deficit has become an existential threat to our freedom).

As a Senior Fellow for Family Empowerment at the Family Research Council (FRC), I’ve seen first hand that social conservatives view the economic crisis – and, more specifically, a balanced budget — as a moral issue. Similarly, national security conservatives realize it’s a security issue (America’s debt is being lent by foreign interests, with China being the largest single holder). This is an issue that transcends the normal dividing lines, and unites us.

Again, that's true until you get into the particulars, which no one has. Are social conservatives really going to stand for the abolition of, say, faith-based initiatives or abstinence education? Will fiscal conservatives ever recognize that you can't do much of anything without raising revenue? And national security conservatives will never be willing to do things like not bomb people.

Moreover, social and national security "conservatives" were never really opposed to big government, other than rhetorically. They were happy campers when a Republican big government gave them what they wanted, as the second President Bush did. I suspect that even the most die-hard Tea Partier isn't thinking about the cost of continuing, say, the Bush tax cuts or escalating the war in Afghanistan.

The important thing to remember is that this isn't the largest debt level in American history (at least as percentage of GDP). That was back during World War II, when it went over 100%. Luckily for the Americans, they owed most of their debt to themselves. Oh, and the war destroyed most of the world's other economies, allowing the U.S to grow at an unrealistic rate for nearly thirty years. Neither of those things are true any longer.

There was also a national consensus then. Congress almost unanimously declared war, which they stopped doing altogether even though the Constitution explicitly requires it. Essentially, that meant that Congress had no real skin in the game when it came to wars that it didn't declare. Sure, presidents were politically ruined by foreign misadventures (specifically Truman, Johnson, and Bush 43) but members of Congress almost never are.

When Congress is relieved of specific responsibility for wars it didn't declare, it doesn't see the need for sacrifice in the domestic spending that regularly gets them reelected. And those wars didn't stop presidents from pursuing their domestic agendas, such as health care bills, tax cuts and great societies.

A balanced budget amendment isn't going to change that unless it's air-tight, which it won't be. Any such amendment would almost have to have loopholes for "wars and other emergencies." And if you really want to bomb Iran or win the senior's vote by giving old people free stuff, "emergency" becomes a very elastic term.

Nor are fiscal conservatives interested in a serious amendment. A real balanced budget amendment would kill supply-side economics immediately. You wouldn't be able to make the false argument that a giant tax cut now would create sufficient revenue to pay for itself someday when the Constitution would demand balance this year. You would have to actually pay for your tax cuts with real-time budget cuts: The bigger the tax cut, the larger the immediate hit program spending takes. And I would love to see a politician try to sell a tax cut while cutting Social Security benefits because I never have before.

What people like Ken Blackwell aren't telling you is that everybody's interests get hurt badly by a balanced budget amendment that's worth the paper that its written on. Tax cuts become almost impossible and going to war would require such serious domestic cuts that a congressional declaration would be unavoidable.

It would also require raising revenue in significant ways. The highest tax rates have been cut by nearly two-thirds over the last 50 years while spending has increased explosively. Lyndon Johnson had to juggle the numbers to get his 1969 budget under a hundred billion dollars. George Bush's last budget had a deficit of $1.3 trillion. Just the interest on the debt was $430 billion in 2007.

These people aren't serious and an amendment would prove it within weeks. If, by some cosmic accident, it actually passed, they'd be wiped out forever. So I support it.