2003 July 15 Tuesday
On Why The US Federal Deficit Is Projected At $455 Billion

White House budget director Joshua B. Bolten assigns the causes for the large US government deficit as follows:

Just what caused that erosion is the subject of fierce partisan debate. The White House pinned the blame on three years of sluggish economic growth and the aftermath of the Sept. 11, 2001, terrorist attacks. During Bush's first months in office, the White House projected a $334 billion surplus for 2003. Of the $789 billion swing to a $455 billion deficit, Bolten attributed 53 percent to the economic downturn, 24 percent to war, homeland security and other new programs, and 23 percent to the three successive tax cuts enacted since 2001.

Some economists think the federal deficit will grow even larger in 2004. That depends heavily on how well the economy does and whether the US has to go to war against North Korea or Iran to prevent their development of nuclear weapons. Another war could easily add $100 or $200 billion of additional costs or perhaps even more.

Of course, Congress and the President, out of respect for the wishes of fiscally prudent senior citizens (fiscally prudent about their own bank accounts - not about those of the rest of us), are determned to expand Medicare further with a drug benefit and other new benefits. Never mind that the current trajectory of US old age retirement benefits looks set to send the total size of government much higher in the coming decades. Most of the currently retired folks will be pushing up the daisies and won't have to deal with the long-term consequences of their desires and of the desires of the politicians to cater to the wishes of their highly motivated voting bloc.

Libertarians want less government. They trot out various arguments about why it is morally illegitimate for governments to take so much of the earnings of workers and to intervene to grant preferences to particular groups. While I personally agree with many of those arguments the libertarians have been notably unsuccessful in getting seniors, farmers, poor people, and assorted ethnic and other special interest groups to agree to less government when they are benefitting from larger government. There is a lesson there in my view: Groups that have reasons to be highy motivated to get a government hand-out are hard to deny. The best we can hope to do is to try to avoid the kinds of conditions that cause people to want governments to help them.

In my view there is not much that can be done about the political strength of the senior voters in the short to medium term. They are one growing source of demand upon the public purse whose demands will inevitably be satisfied come what may. However, there are other sources of demand for government spending that, with wise policy changes made now, could be reduced in future years. For instance, one way to decrease the demand for greater government spending for health care for uninsured is to take measures that will reduce the number of such people. If we changed tax law to favor people having portable medical insurance polices that can travel with them between jobs and combined them with tax-free medical savings accounts that could pay for the premiums between jobs then people would be less likely to find themselves uninsured.

Basically, I'm arguing for interventions in markets that cause people to be less likely to feel desperately in need of government help. Yes, those interventions are, strictly speaking, not pure libertarian laissez faire policies. But most humans are not dedicated to libertarian principles on issues where their own health and welfare are at stake. Our real choice is not between government intervention and no government intervention. Our real choice is between whatever government interventions that groups will naturally demand and government interventions that have some costs but which reduce the demand for even bigger interventions.

Given this view about the inevitability of government intervention I see a number of policy areas where libertarian policy positions lead to more government in the long run. A notable example is immigration policy. People with low skills and low educational levels who are allowed to immigrate will, on average, become far more supportive of expansion of government spending than those who are more skilled at occupations that garner high pay in the job market. For instance, Hispanics lack medical insurance at two and a half times the rate at which whites are uninsured. This inevitably leads to more government spending. A forward-looking immigration policy that stopped letting in lower skill and less educated workers would reduce future increases in taxes and in racial and ethnic preferences systems.

Another area where wiser public policies could reduce future demands for larger government is in areas of public policy that relate to marriage. Maggie Gallagher, editor of the forthcoming MarriageDebate.com site, in arguing against gay marriage (and, no, I'm not going to get into that debate in this post) makes an important point about marriage in general: the decline of marriage inevitably leads to an expansion of the state.

The consequences of our current retreat from marriage is not a flourishing libertarian social order, but a gigantic expansion of state power and a vast increase in social disorder and human suffering. The results of the marriage retreat are not merely personal or religious. When men and women fail to form stable marriages, the first result is a vast expansion of government attempts to cope with the terrible social needs that result. There is scarcely a dollar that state and federal government spends on social programs that is not driven in large part by family fragmentation: crime, poverty, drug abuse, teen pregnancy, school failure, mental and physical health problems. Even Medicare spending is inflated, as elderly singles spend more of their years in nursing homes.

Want to be an enlightened tolerant libertarian who thinks that single parenthood is just a personal choice that governments should not have any influence over? The problem with that view is that if there are more single parents there will inevitably be more government spending. The single parents will demand it. Libertarian arguments to persuade them not to ask for medical spending subsidies, housing subsidies, and other subsidies will fall on deaf ears (if you think otherwise then explain why the libertarians haven't managed to convince the old folks that old age entitlements are wrong). Also, those single parents will earn less and pay less in taxes because they are busy taking care of their kids. So they will put less into the government purse and take more out. Also, the children of single parents will be more prone to drop out of school, become criminals, and in other ways create problems for the rest of us that will result in more government spending and more taxes on the rest of us. Large scale single parenthood is a recipe for a big social welfare state and lots of social pathology.

In foreign policy the best way I can see to reduce the future demand for US government spending for national defense, rule of foreign lands, and homeland defense would be to spend money on a crash program to develop technologies that can obsolesce fossil fuels. An elimination of the demand for fossil fuels would reduce the money available to spread Wahhabi Islam, reduce the money available for terrorists, reduce the cost of fighting those problems, and eliminate the need for the US to protect oil shipment lanes and oil fields.

Share |      By Randall Parker at 2003 July 15 10:21 PM  Politics American Domestic


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