Giving New Meaning to the Phrase ‘Shrinking the Budget’

Posted April 7, 2008 at 4:12pm

There is much about the ongoing federal budget debate that gets observers and participants angry, frustrated and depressed. In fact, such feelings are so prevalent these days that we should probably let the producers of the new HBO series “In Treatment” know they’re missing lots of great story lines for Gabriel Byrne to explore with his patients.

[IMGCAP(1)]There are two current budget arguments I personally find most distressing.

The first is that current or proposed levels of federal spending and revenues are somehow inappropriate, unjustified or unpatriotic because they deviate from the historical average. This most often is used when total spending or revenues are projected to be higher as a percent of gross domestic product than what they’ve been in the past.

Where is it written that what was typical for previous generations is correct for the present or the future? The current economy is so different from what has come before that the fiscal policy appropriate for today should be determined and evaluated separately from what happened in the past. The comparison to a historical average is more of a rhetorical stunt that an intellectually honest analysis, let alone something that should sway public opinion or change votes.

The comparison to a historical average also is less than honest because it somehow assumes that what was spent and taxed in previous decades was absolutely appropriate back then. The truth is that the comparison really is only to what was, rather than to what was effective.

Those who use historical averages to criticize what’s proposed and considered today say it’s a measure of what has been politically as well as economically tolerable.

But the key phrase is “has been.” What was acceptable in the 1970s and ’80s or from 1910 to 1920 is no way to measure what’s acceptable today. The comparison may be historically interesting, but it’s otherwise meaningless.

Using the average percent of GDP for spending and revenues to judge what’s being considered today is budgeting for the past rather than for the future. It doesn’t take into account the fact that what’s wanted, needed and expected from the federal government may have changed. It also doesn’t allow for the possibility that what the government was doing in the 1950s and ’60s may cost more now than it did back then.

For example, if the world is far more dangerous and requires more people in uniform than has been the case over the previous century, then the cost of maintaining a military will be greater today than it was before. If, as is now the case, we have a volunteer military instead of relying on the draft, then the cost of recruiting and retaining troops will be greater than it was before. In both dollars terms and as a percent of GDP, the cost will be greater even though the policy will not have changed.

The second most misleading and depressing argument used these days is that the budget problem is only a spending problem.

I see lots of ways and reasons to reduce federal spending and would implement them immediately if it were in my power to do so. The point, however, is that there are always two ways to balance the budget, reduce the deficit and run a surplus, and no matter what some repeatedly say, cutting spending is only one of them.

At least mathematically, these all can also be accomplished by increasing revenues. So as much as tax-cutting proponents and tax- increasing opponents might argue otherwise, that makes the federal budget problem at least as much about revenues as spending. If spending cuts are not possible for political or other reasons and reducing the deficit is the objective, revenue increases will also get you where you want to go.

(Caution: Please read this paragraph completely instead of just the first sentence before you do anything precipitous.) “Spending” is actually not the problem in any case. What and how much the federal government spends is determined by what Congress and the president decide they should do. They don’t decide to spend a certain amount and then figure out how to do it. In fact, just the opposite is true.

That makes “spending is the problem” little more than fiscal misdirection.

Not only does it allow the real discussion about what the government should stop doing or do less of to be avoided, it’s based on the absolutely false argument that the historical average of the amount the government spends and taxes is an important line that can’t be crossed. It also ignores the notion that the amount the government spends as a percent of GDP may well have to be more today than it has been in the past because there are now asks, expectations, demands and desires that it do more.

Criticizing proposed spending and revenues because they are higher than a historical average and using the “spending is the problem” phrase are both hyperbole masquerading as intellectual analysis. Both should be seriously and immediately questioned … or ridiculed … whenever they are raised as this year’s budget debate and election continue.

There are better and more convincing arguments to make if you believe the government should spend and tax less, and hearing them will likely be very therapeutic for those who have, need or want to follow the federal budget.

That may prevent us from sitting on a couch opposite Gabriel Byrne on HBO, but it will be better for the outcome of the debate.

Stan Collender is managing director at Qorvis Communications and author of “The Guide to the Federal Budget.” His blog is Capital Gains and Games.