The Spendaholics’ Offensive

Member Group : Lincoln Institute

Editor’s note: A version of this article first appeared at Forbes.com.

A primary meme of the Democratic Party in 2013 is that the federal government
doesn’t have [4]a spending problem. That is what President Obama reportedly said
to House Speaker John Boehner (R-Ohio) in their [5]January budget negotiations.
Acting on that assumption, [6]Obama’s State of the Union address signaled his
desire to scuttle the 2011 sequestration deal that appears to be the American
people’s [7]last best hope to trim federal spending.

The president’s partisan allies have rushed to take up the cause. Two days after
the State of the Union, Iowa Senator Tom Harkin (D-Iowa) stated, "I want to
disagree with those who say we have a spending problem." House Minority Leader
Nancy Pelosi (D-Calif.) recently took up the refrain, telling Chris Wallace on
Fox News, "It is almost a false argument to say that we have a spending
problem."

With these statements, the political battle lines for [8]2013 have been drawn.
The Democrats don’t even want to talk about spending cuts. For them, the only
desirable option is [9]to continue what Washington has been doing for decades
regardless of which party was in power—spend more.

With apologies to anyone struggling with alcoholism, a U.S. senator earnestly
insisting that he and his colleagues don’t have a spending problem is like an
alcoholic denying that he has a drinking problem. While [10]the problem is
obvious to some, the senator is stubbornly in denial, not yet ready to face the
unpleasant reality.

Harkin’s fellow Congressman, House Minority Whip Steny Hoyer (D-Md.), recently
articulated his party’s agenda, declaring, "The country has a paying-for
problem," not a spending problem; in other words, full speed ahead with spending
while [11]we look for more tax revenues.

Nobody, however, believes that Congress will raise taxes enough to pay for all
the spending that is forthcoming, sequestration or no sequestration. Instead,
[12]Washington will continue to spend more today while sticking future taxpayers
with the bill by borrowing to cover the deficit.

The spendaholics charge ahead because they know they can borrow whatever they
need. If Uncle Sam didn’t have the power to tax, it would be considered a lousy
credit risk. Taking into consideration over $16 trillion of "official debt,"
several trillions more of off-budget indebtedness, and perhaps as much as $200
trillion of unfunded liabilities, the risk premium attached to a borrower with
negative net worth and insufficient revenues would result in interest rates far
higher than [13]today’s abnormally low rates.

By cramming down interest rates, the [14]Federal Reserve has become the federal
spendaholics’ enabler. Like many homeowners during the housing bubble last
decade—who paid more for their houses than their income could support, only
because creative financing enabled them to "tote the note" for a while—so, too,
is the federal government able to borrow enough to avoid its day of reckoning:
[15]the universal recognition that it can’t possibly make good on its
obligations—because of [16]the Fed’s financial engineering.

Why? Here’s one reason: power. [17]Spending equals power.

All this government spending makes our society poorer, because such spending is
"acatallactic" (a fancy economic word that means [18]government spending
withdraws scarce economic resources from the free markets and diverts them into
the public sector, where they will be directed by political decisions into
less-valued uses). The evidence that [19]Big Government leads to economic anemia
is overwhelming, whether in the extreme cases of [20]socialistic governments
that have commandeered entire economies to democratic interventionist states or
where the dose of statist poison is smaller, but [21]the positive correlation
between size of government and slowness of economic growth remains.

How can the spendaholics get away with policies that don’t make economic sense?
Because [22]they make great political sense. Democrats have seen how
[23]Europeans have taken to the streets to protest any and all budget cuts by
Europe’s broke governments, and they know that tens of millions of Americans are
more concerned about continuing to receive federal benefits today than some
potential financial Armageddon tomorrow.

Think of how George W. Bush and a Republican Congress acted like spendaholics
when they were in power. This shows how difficult it will be for federal
spending ever to be curbed. The fundamental problem isn’t so much partisan as it
is systemic. In a democratic system, politicians win elections by doing what
attracts the most votes. Since [24]voters like to receive benefits from
government, but don’t like to be taxed to pay for all those benefits, all the
incentives are for politicians to adopt policies that increase spending faster
than revenues.

This will all end badly some day when "the market" asserts itself and sweeps
aside the rotten debris of spendaholic policies abetted by a compliant
[25]central bank. Until that day, though, the spendaholic binge will continue.

— Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and fellow
for economic and social policy with [26]The Center for Vision & Values at Grove
City College.

© 2013 by The Center for Vision & Values at Grove City College. The views &
opinions
expressed herein may, but do not necessarily, reflect the views of Grove City
College.

[27]www.VisionAndValues.org | [28]www.VisionAndValuesEvents.com

References

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http://www.visionandvalues.org/2013/01/economic-outlook-for-2013-zirp-zombies-and-the-japanization/
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http://www.visionandvalues.org/2012/09/a-word-from-walter-williams-the-rich-dont-pay-enough/
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http://www.forbes.com/sites/realspin/2012/03/12/country-economic-policies-what-the-u-s-could-learn-from-other-countries/
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http://www.visionandvalues.org/2011/10/justice-is-not-served-by-government-economic-planning/
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