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DAVID WEBBER: Political system makes fiscal discipline hard to recover

Tuesday, March 19, 2013 | 6:00 a.m. CDT

COLUMBIA — Federal budget deficits and sequestrations, the “fiscal cliff” and the perennial cry that some federal program is going bankrupt are most likely here to stay. Blame the design of our political system. These fiscal problems did not just start yesterday.

In hindsight, a legacy of the 1960s' Great Society might well have been the loss of federal fiscal discipline. The Revenue Act of 1964 (also called the “Kennedy tax cut”) reduced personal income taxes by 20 percent, resulting in increased economic activity and increased revenue — and a legacy of budget deficits. President John Kennedy had proposed tax cut in the 1963 State of the Union address, but Congress defeated it. A year later, after the assassination and after President Lyndon B. Johnson promised a lid on the federal budget for the following year, Congress adopted the tax cuts in February 1964. There have only been five years (1969, 1998-2001) with a budget surplus since then.

I still have a copy of "New Dimensions of Political Economy" that I read as a senior economics major in 1972. The author is Professor Walter W. Heller, chairman of Kennedy’s Council of Economic Advisors, who had convinced Kennedy that the “new economics” supported the wisdom of a tax cut to stimulate economic growth with the promise of more consumption, more jobs and more federal revenue. Reportedly, Kennedy was innately skeptical, but Heller’s scholastic memos ultimately carried the day. The tax cuts did increase spending but eventually resulted in overheating the economy, setting off inflation that took the next two decades to tame.

Once there was a demand for more revenue to fund the Vietnam conflict and to expand social programs, achieving a balanced federal budget during the rest of the 1960s became a secondary concern. Deficit spending allowed for both “guns and butter,” as the expression was back then. By then political bad habits were institutionalized.

Our political system, and the political culture surrounding it, makes it nearly impossible to achieve the level of financial responsibility most citizens would expect. A laudable goal would generally be a balanced budget over the course of a business cycle along with more predictable revenue and expenditure streams.

Quite simply, there are simply too many policymakers in the budget process with their own local, state and national interests — and their own pet political interests — to allow for textbook analytical comparisons of the cost and benefits of particular programs. Most of the time the only path to “getting to yes” on the final budget is to “just say yes” to many small programs that don’t make sense in the larger scheme of national fiscal responsibility.

Most Americans have trouble grasping that this is the natural result of having single-member districts, even if they were not gerrymandered, and a malapportioned Senate with two senators from both the tiny states and the supersized states. Toss in special-interest-funded political campaigns and now the super dense 24/7 news cycle, and few elected officials can afford to pursue the national interest if it means eliminating a local pork barrel project or a special-interest provision that maintains a flow of campaign funds while depleting the national or state treasury.

Had American culture not been moving to a consuming society with increasing consumer debt, it is possible that citizens would have been less willing to accept government debt. However, most citizens were benefiting by both their personal debt, the deficit-induced economic growth or by directly receiving federal benefits such as local water projects, interstate highways and college loans.

Fortunately, most states require a balanced budget amendment, though pension and environmental liabilities are most likely not fully accounted for on state balance sheets. Many states adopted balanced budget requirements in the 1840s after state legislators figured out how to overspend state revenues for parochial purposes hoping for federal relief. Ironically, there is now some political science research arguing that a key for a nation’s economic stability is for the national government to not bail out financially irresponsible states and provinces.

A federal balanced budget amendment is politically unlikely, practically unworkable and potentially irresponsible. Immediate consequences would likely be to shift policy responsibility and financial burden to the states and to increase the power of the federal courts.

Heller’s description of the potential contributions of the “new economics” now seems rather naive. An expensive lesson of the past 50 years is that the political system is not very good at constraining the spending of government expenditures. Economists and political scientists should have, and could have, done much better in advising policy-makers to be more fiscally responsible.

David Webber is an associate professor of political science at MU where he is currently teaching a course on "Is America in Decline?" He can be reached at webber@missouri.edu. Questions? Contact Opinion editor Elizabeth Conner.


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