The Time for Spending Discipline is Now
Thursday, 25 March 2010 12:42
Thousands of people marching from the city's main plaza to a plaza in a neighboring city: Students, faculty, staff, and workers protesting the budget cuts, fee hikes, and furloughs in public education, chanting slogans, waving signs and shutting down a major traffic artery. Was this Greece after the European Union-mandated austerity program was announced?
No, this is California, U.S.A., as the state tries to deal with a $26 billion-plus budget shortfall which has resulted in millions of dollars being slashed from public education.
California's $26 billion budget shortfall is almost four times the 4.8 billion euro (or $6.5 billion) package of austerity measures recently passed by the Greek parliament - as protestors demonstrated outside, no public transport ran in Athens, Greek airports were closed, and state hospitals ran on skeleton staff.
Greece and California got where they are because they spent too much, and without immediate and permanent action our federal government is headed over the same precipice of austerity and civil unrest.
Over the last five years, federal spending increased from around 20 percent as a share of GDP to 24.7 percent, and the government's expenditures increased from $2.47 trillion to $3.52 trillion - a 42 percent increase. These are the highest levels of spending as a share of the economy since World War II.
President Obama's budget proposes increases in federal spending over the next ten years to a level approximately 56 percent over the 2010 level. To accomplish this, the president proposes growing federal spending from its 2010 estimated level of $3.618 trillion - $30,981 per household - to $5.67 trillion in 2020, which is $48,552 per household.
This level of spending is not sustainable even in socialized European countries. If the vote were held today, the United States would not qualify for membership in the European Union with spending at this level.
A federal government that is on the road to consuming 40 cents of each and every dollar we earn was not part of the vision of the Founding Fathers, and it certainly does not allow us to keep faith with prior generations by allowing future generations of Americans greater opportunity, more freedom, and a better standard of living.
When it comes to federal spending, the American people know something is amiss. They fear for the future because they instinctively understand that if we continue on our present path, their children will live in smaller homes, drive older cars, find fewer jobs, cash shrinking paychecks, and will find themselves confined to small, timid dreams.
That's not the America I want to pass on to my children.
Fortunately, to paraphrase Ronald Reagan, the future of America is not yet written, and "We the People" hold it in our hands.
Can we grow our way out? Unfortunately, no. Although pro-growth policies like fundamental tax reform and lower tax rates are critical components of this crisis's solution, they alone are insufficient. Former comptroller general David Walker has estimated that it would take double digit economic growth every year for the next 75 years.
Can we tax our way out of the problem? In a word, no. Taxes must double to pay for what we are on track to spend under current law, crushing our economy and ensuring future generations have a far lower standard of living. That is not an option.
Can we continue to borrow our way out of the problem? Borrowing of that magnitude would drive up interest rates to unimaginable levels, crowding out borrowing opportunities for families and businesses. As Greece and other European countries face default for their excess spending and China lectures us on our spendthrift ways, again the answer, in a word, is no.
Without spending discipline, only one option is left - monetizing the debt, also known as inflation. Although Chairman Bernanke has repeatedly said that will not happen on his watch, many think it inevitable. If it is, the inflation could be so high we may look back with longing nostalgia upon the Carter era.
The only real option is spending discipline - the option now being forced upon Greece by her partners in the European Union.
That is why, together with Mike Pence and John Campbell, I have offered H.J. Res 79, a Spending Limit Amendment to the Constitution of the United States that would limit spending to one fifth of the economy - our historical spending average since World War II. The limit could only be waived by a declaration of war or by a two-thirds congressional vote.
Let me be clear, this is not an effort to enshrine fiscal policy into the Constitution. It is an effort undertaken to allow "We the People" the opportunity to fundamentally define the size of government in a free society and to save future generations from lives of less freedom, fewer opportunities, and a lower standard of living. Please join us today.
