Spending Denialists and the Fiscal Illusion

The late economist James Buchanan predicted our current budgetary impasse. Is there a way out?


Several weeks before the slow-motion "fiscal cliff" negotiation ended in a giveaway-rich, tax-hiking, 154-page spending bill that senators had all of six minutes to glance at before approving by an 89-8 vote in the wee hours of January 1, President Barack Obama reportedly told House Speaker John Boehner flat out: "We don't have a spending problem."

Boehner, in relaying the quote to The Wall Street Journal three days after the House of Representatives grudgingly ratified the Senate plan, expressed astonishment at the president's words. But he shouldn't have. Spending denialism—of the literal sort—has become a core progressive value in the age of Obama.

"Spending isn't the problem," Steve Benen wrote at Rachel Maddow's blog in December. "We don't have a spending problem. We have an aging problem," seconded Mother Jones's Kevin Drum in January. "We don't have a spending problem, we have a military spending problem," chimed in The Washington Post's Ezra Klein.

Such confident consensus would be more convincing if not for the fact that federal spending rose from $1.77 trillion in fiscal year 2000 to $3.72 trillion in 2010. If spending growth had been pegged to the rates of inflation and population, Washington would still be doling out less than $3 trillion a year, and the fiscal conversation would be about surpluses, not debt ceilings.

These were the types of things Democrats used to care about, or at least pretend to care about, back when it was Republicans running up the national credit card. "We will maintain fiscal responsibility, so that we do not mortgage our children's future on a mountain of debt," the 2008 Democratic Party Platform promised. "What we have done is kicked this can down the road," Obama told The Washington Post just before taking office. "We are now at the end of the road and are not in a position to kick it any further."

That was then. Now we live in a world where the Senate Finance Committee hasn't passed a budget since April 2009, preferring instead to legislate via panicky, lobbyist-crafted spending resolutions like the fiscal cliff avoidance package. Those long-term entitlement reforms that Obama promised to stop kicking down the road? Despite triggering the whole fiscal-cliff negotiations in the first place—recall that the January 1 "sequester" deal was only a backup plan in case bipartisan negotiators failed to come up with a strategy to cope with Baby Boomer entitlements—Social Security and Medicare escaped the new agreement unscathed.

It's easy, and accurate, to blame denialist Democrats for this sorry state of affairs. But there's another reason that John Boehner should not have been surprised to hear a politician say "We don't have a spending problem." After all, the man almost certainly owns a mirror.

In January 2011, after a wave of spending-averse Tea Party freshmen restored a Republican majority to Congress and elevated Boehner from minority leader to speaker, he was asked by NBC's Brian Williams to name just one "program right now that we could do without." Boehner's answer? "I don't think I have one off the top of my head."

This is what has passed for Republican political thinking (or, if you prefer, courage) for far too long. Karl Rove, hands still awash in the red ink he helped unleash during the presidency of George W. Bush, advocated in a January Wall Street Journal op-ed that Republicans shy away from naming their own areas to cut (and even from cutting spending overall), and instead take the political cover of backing cuts in spending growth suggested by the bipartisan National Commission on Fiscal Responsibility and Reform.

Republicans, it would seem, are caught in a vise. On one side is their general philosophical belief that government should be smaller, which, happily enough, is shared by a healthy portion of the country. Respondents to a December Washington Post poll, when given a choice to favor either spending cuts or tax increases in a combination fiscal package, supported spending cuts by a margin of 47 percent to 10 percent. Rasmussen Reports in late December found 62 percent of Americans favoring an across-the-board spending cut. The Reason-Rupe poll has found similar dramatic preferences for spending cuts over taxes.

But public opinion, or fear of it anyway, forms the other side of the GOP vise, too. Voters may favor spending cuts generally, but they punish politicians who propose them specifically, or so goes the theory. As the ever-cautious Mitt Romney memorably answered when The Weekly Standard asked him in April 2012 whether he would eliminate or combine federal departments, "The answer is yes, but I'm not going to give you a list right now."

Much of this lamentable political and fiscal dynamic was foretold by the great Nobel Prize–winning economist James Buchanan, who died in January at age 93. Buchanan was the leading popularizer of public choice theory, which observes that politicians and government functionaries respond to incentives not necessarily aligned with the public good. Midway through the Reagan presidency, he wrote: "The attractiveness of financing spending by debt issue to the elected politicians should be obvious. Borrowing allows spending to be made that will yield immediate political payoffs without the incurring of any immediate political cost."

What's more, Buchanan warned, "the replacement of current tax financing by government borrowing has the effect of reducing the 'perceived price' of government goods and services," with the result that taxpayers "increase their demands for such goods and services." 

It was for this reason that Buchanan favored balanced budget amendments rather than an endless series of tax cuts. If voters knew how much their government actually cost, he reasoned, they might finally get serious about restraining it. As his former colleague Tyler Cowen put it in The New York Times in March 2011, Buchanan "argued that deficit spending would evolve into a permanent disconnect between spending and revenue, precisely because it brings short-term gains. We end up institutionalizing irresponsibility in the federal government." It's the "fiscal illusion" that creates legislative paralysis in the face of a crushing entitlements burden.

So does this "permanent disconnect" mean that we are locked into what the mainstream press often euphemistically refers to as "structural deficits"? While the head fears yes, the heart says not so fast.

Take a look at Senior Editor Brian Doherty's piece "Congress After Ron Paul" (page 18). There you will see interviews with three new and one returning GOP member of Congress who speak a different language than the generation of Republicans who preceded them. Rep. Thomas Massie of Kentucky favors cutting military spending, and says, "A lot of domestic programs I cannot find a constitutional basis for." Florida's Ted Yoho says out loud what Republicans have long since stopped thinking: eliminate the Department of Education. And Michigan's Justin Amash, the House's heir apparent to Ron Paul, criticizes his colleagues for being "afraid" that "if they are too bold they will be voted out of office."

These are not Karl Rove's Republicans. They're not John Boehner's either—the speaker purged Amash from the House Budget Committee in December, and Amash returned the favor by leading a failed revolt against Boehner's leadership when the 113th Congress was sworn in.

James Buchanan taught us all that in politics and governance, incentives matter. As the fiscal cliff gives way to the debt ceiling impasse and other artificial deadlines to come, intriguing questions linger. Can we finally create incentives to reward politicians who peel the curtain back on the fiscal illusion? Will the GOP, at long bloody last, take concrete steps to cut government? 

The spending denialists might hold the upper hand for the moment, but their political future—and our economic prospects—are brushing up against another truism about deficit spending, made famous by the late Herbert Stein: "If something cannot go on forever, it will stop."  

NEXT: Egyptians Look to Black Market for Currency

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  1. We don’t have a spending problem. We have a theft problem.

    1. I’m tempted to said we have both: a spending problem and a theft problem!

      Besides James Buchanan’s texts, I spotted on Amazon, a book titled “The culture of debt” by James V. McTevia.

    2. We don’t have a spending problem, we have a democracy problem.

    3. Good point Pro Libertate. Politicians are stealing our money and using it to buy votes (the Democratic way) or to generate campaign cash (the Republican and Democratic way). Well, maybe I’m wrong, as most Republicans also seem to be defending redistribution of our money to seniors.

  2. Boehner feigned astonishment for the benefit of the WSJ editorial board.
    In the face-to-face with The Glorious 0, he said, “I know that, but we’ve got to throw a few scraps to the rubes.”

    1. You know who else lived by the big lie.

      1. Bernie Madoff?

      2. Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi?

          1. You know, Ponzi.

            /Ayyy, thumbs up

            (wait, that was Fonzi)

      3. Every Scientologist ever?

    2. “So, it is almost a false argument to say we have a spending problem.

      So it’s almost a false argument? What does that make it, a true argument?

      We have a budget deficit problem that we have to address.”

      I guess it does.

  3. Meanwhile, over at Slate, the eminent economists in the comments sections have figured out that the government can actually print its own money, and thus will never run out! Why hasn’t someone thought of this before!? We can spend and spend forever!!!

    1. I STILL HAVE CHECKS!!!1!!!!!eleventykabillion!1!

      1. My Bank of China credit card hasn’t reached its expiration date yet, so it must still be good, right?

    2. What about things like inflation?

      1. Hasn’t been a serious concern in at least 10 years, and thus is not a factor that enters the mind of the typical college sophomore posting at Slate.

  4. “Spending isn’t the problem,” Steve Benen wrote at Rachel Maddow’s blog in December. “We don’t have a spending problem. We have an aging problem,” seconded Mother Jones’s Kevin Drum in January. “We don’t have a spending problem, we have a military spending problem,” chimed in The Washington Post’s Ezra Klein.

    In addition to the fact that we don’t have just an aging problem or just a military spending problem, those quotes have an air of “It isn’t a spending problem because we refuse to call it that.”

    1. Government won’t be making much progress on the aging problem, considering they want the FDA to regulate vitamins and nutritional supplements.

      They are already confiscating walnuts on the basis the seller made health benefit claims for walnuts; thus, are illegal drugs.…..-Drugs.htm

      They’re joining the TSA in wanting to handle my nuts.

      On the plus side, you can get free mammograms and prostate exams at the airport now.

  5. like Edna said I am blown away that anybody can earn $6418 in 1 month on the computer. have you seen this link http

    1. Send this to Barack Obama.

    2. So, Presidebt Obama, with ads like that, why do we still have poverty and unemployment problems in the US???

  6. Aging Population = No Spending Problem. So the problem is inate in the eldery, through some as yet undiscovered magical property, they absorb money from the government?

    Isn’t this whole thing like saying: I don’t have a spending problem, my vacations are too expensive? Damn vacations.

    1. The magical property you’re looking for is called “voting”. Voters absorb money from the government, the elderly are better at it because there are more of them and more of them vote.

      Basically, the Greatest Generation started this mess. Maybe they didn’t know any better at the time. But now the Boomers have decided to ride it out, hoping they won’t live long enough to see the crash…

    2. What about the non-working class that are fulling capable of working. Don’t you think they absorb alot of the money?

      These aging people you talk about have worked their entire lives and paid into the system. What are you going to do when you get too old to work? You probably haven’t thought much about that because young people think they are going to be young forever.
      But why aren’t we talking about the non-working class, the ones that are fully capable of working. How much are we spending on them? Lets get them off the government payroll and back to work. That wouldn’t solve all our problems but it would be a responsible start.

      1. “What are you going to do when you get too old to work?”

        Certainly not collect Social Security because your generation continually voted for politicians that promised you “free stuff” and so your SS money was spent. Then you just voted the same politicians in again to give you all my SS money leaving none for anyone. Basically, all young people have to save enough for two retirements – yours (also called “FICA”) and our own which is called savings and a 401K.

        Fuck you and your BS. You had a vote for decades and your generation voted to spend all your savings, and now continue to vote in favor of stealing ours.

  7. “Oh, please, monsieur. It is a little game we play. They put it on the bill, I tear up the bill. It is very convenient.”

  8. I know that car-over-a-cliff picture better than I know a lot of my friends.

    The Administration sounds like those people that go on Oprah with massive personal debts, who think the problem isn’t the lifestyle, but that they don’t make as much as they deserve.

    1. I was thinking Judge Judy, but Oprah works too.

  9. It was for this reason that Buchanan favored balanced budget amendments rather than an endless series of tax cuts.

    I tend to agree. This could mean balance over some period of time instead of each year. I don’t care if we increase taxes or cut spending. I just think it’s a travesty to force future generations to pay for our selfishness and the crap *we* want rather than what *they* might want. Debt is a certainty. It will not go away short of default or hyper-inflation. Increasing taxes is gambling that growth will increase fast enough to match it. It’s a very unwise gamble.

    1. Pretty to think so, but a Balanced Budget Amendment would be treated exactly like the Second, Fourth, Fifth, Ninth, and Tenth Amendments.

    2. “The budget shall be balanced at least once during each 4-year presidential term.”

      Something like that might work. But only if people decide to start caring about the Constitution again…

      1. That won’t work due to accounting gimmicks. They’ll hold tax revenues and record it in a surplus year, while spending will be paid in deficit years, and shifted from surplus years.

  10. No worries! I just found out from MSNBC that the Deficit is not a problem – it’s the debt. I feel so stupid now that it was explained, I thought there was direct causality between the debt and the deficit. Apparently though, they are unrelated. Sleep well tonight deficit hawks and spending phobes.

  11. Progressives like to point to Europe. Why not follow Europe on this one and pass a balanced budget amendment, like Germany?

  12. So . . . we either get this governing elite idiocy under control or we watch the walls come crumbling down. I’m pessimistic. It’s a little like telling Aunty Leesa (or Uncle Larry) all the excessive adipose tissue building up around their ass and gut is a problem. They deny that a) there is too much fat and b) that there is any negative health consequence to an excess 200 pounds – and climbing – of toxin-storing, energy-demanding, god-knows-what else killing fat.
    Back to the trough.
    Wake up! The shit’s gonna hit the fan, because human nature is the same human nature that has brought down economies and smokers and couch potatoes (yes, there’s an e in potatoes) for eons!
    But it’s somehow silly to suggest things might actually get worse than better in OUR society.

    1. I’m not sure human nature is to blame, at least not as much as the nature of a collective that distorts an individuals behavior by offering perverse incentives for unhealthy actions.

      1. I think my point is that it isn’t really a “distortion” of human behavior at all – or collective nature. We progress when stress and the environment require it, but also there’s a difference between human (or its societal analog) nature when the human is insecure or hungry, versus when the human is content and blind to the possibility that a tornado can come and throw the human back into the wild.
        When societies progress to the peak where there is plenty for all, then rulers start getting greedy and the curve begins to go down again. And it’s in the nature of the elite to continue to deny they are being stupid, rather than rational and making economic policy choices that bend the curve back up.
        Other than greed, arrogance, and idiocy how do you explain government spending choices?

        1. Wouldn’t disagree, more like adding. Just wanted to point out that it’s only through the collectivists and trust in government that they’ve been allowed to exercise their greed, arrogance, and idiocy in such a manner as to harm so many beyond their immediate selves and families.

  13. All the talk is about the aging population, but most of these people have worked their entire lives and paid into social security. We owe it to these people to find a way to support social security. These people are part of the working class. Why aren’t we talking more about how much we are spending on the non-working class. Many of these people are fully capable of working and paying into the system. If we are serious about cutting spending, why don’t we start with getting the people that are fully capable of working off the entitlement train and back to work.

  14. Aging American, who is ‘We’? You have Nancy Pelosi in your pocket? She’s got a fat purse, how about she volunteer. Didn’t a majority of those you wish to protect support Obama? Didn’t these people have decades to vote in more sensible government officials. I think many of the the people you’re referring to have gone along with idea that generational theft is fair.

    1. Don’t put me in the Obama bucket, I am a conservative republican. I have never voted for a democrat my entire life. I understand that the aging population is taking the lions share of the country’s money. But what I am saying is that I am tired of working my entire life and paying the government while the non working class (many of whom are fully capable of working) continues to feed at the trough and no body talks about it. Let’s talk about getting all the non working class back to work and paying into the system before we talk about taking the working class benefits away

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  18. Now that fiscal constraints are starting to bite, many politicians are afraid to reform or even to discuss changes in the largest problem areas: Medicare and Medicaid. Yes, some laudable cost controls on Medicare are embedded in the new health care law, but they’re not enough. Most likely, we will end up making other spending cuts that won’t solve our fiscal problems.

  19. John Boehner’s either?the speaker purged Amash from the House Budget Committee in

  20. Steve Benen wrote at Rachel Maddow’s blog in December

  21. Steve Benen wrote at Rachel Maddow’s blog in December

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