Cash Carries the Day

Spending is the Alpha and Omega in Washington

Historians will note spring 2006 as the time when America's fiscal meltdown became unavoidable. Fiscal conservatism is not just dead in Washington; it is long forgotten, and no resurrection is on the horizon.

Despite a brief blip of outrage over bridges-to-nowhere and obscene earmarks growing rampant and engorged, budget talk has again turned into a bidding war. The Bush administration's own modest attempts to restrain spending have been swept away by a Congress eager to spend as much as possible in a midterm election year. The numbers tell a sad enough tale. Federal spending is now 20.8 percent of GDP, up from the 18.4 percent President Bush inherited from President Clinton.

A recent USA Today analysis finds that the period from 2000 to 2005, "was the largest five-year expansion of the federal safety net since the Great Society created programs such as Medicare and Medicaid in the 1960s. Spending on these social programs was $1.3 trillion in 2005, up an inflation-adjusted 22 percent since 2000 and accounting for more than half of federal spending."

The figures make a compelling and important case—but there is more. The attitudinal shift among lawmakers seems even more striking. Outside a core of perhaps 35 members of Congress, the very notion that more government money might not produce desired policy outcomes simply does not enter the equation at any level. If one desires more of something—security, health care, warm homes—one need only throw more government money toward that goal.

Sen. Debbie Stabenow (D-Mich.) made waves earlier this week by taking to the Senate floor with a placard declaring President Bush "Dangerously Incompetent." Why? Because Bush was not spending the $5 billion more for first responders Stabenow thought he should spend.

Yet Bush cannot claim the mantle of skinflint no matter how much Stabenow would like to foist it on him. Bush is again this week defending his calamitous Medicare drug benefit, quite heedless of its massive cost to the federal treasury. No mention is made of the fact that critics of the program within and without the administration predicted this very outcome.

Such denial of reality is well-and-truly a return to a Great Society mindset where only will and wallet stand between America and a…great society. It is important to note that this mindset fell out of favor in Washington largely, and perhaps only, due to the incompetent fiscal and monetary polices of the Nixon, Ford, and Carter administrations. A low-growth economy smacked by a double-digit "misery index" simply could not throw off the kind of revenue needed to supply a Great Society–sized wallet. Post-Watergate and post-Vietnam political will waned as well, paving the way for the radicalism of the Reagan years.

After the initial stabs at really whacking federal spending were abandoned, Reagan's lasting contribution was getting marginal tax rates down and the Fed committed to a stable, low-inflation monetary policy. The resulting economic boom continued more or less unabated into the Clinton years. Here's where things get interesting.

When Hillary's Health Care Task Force reached back to the old Great Society dream of universal, government-supplied health care, congressional Republicans were handed an issue at precisely the right moment. Uproar over George Bush I's violation of his "no new taxes" pledge had brought bomb-throwers like Newt Gingrich to the fore, and they were not inclined to continue the permanent minority status of Democrat Lite. To upset the old order and gain real power they'd have to draw a distinction between themselves and the Democrats on basic issues.

Democrats made matters even easier with the House Bank and Post Office scandals which allowed Republicans to play the easy-to-use corruption card heading into the 1994 midterm election. As a result, although it is often forgotten, corruption and congressional reform were a large part of the GOP's Contract with America.

But the document also promised "a historic change would be the end of government that is too big, too intrusive, and too easy with the public's money." This was not just an echo of Ronald Reagan's winning rhetoric. It built on a distinction Republicans had been trying to build for a couple years.

"You can walk into a Wal-Mart store today and have your credit card approved in 2.3 seconds. And yet, it takes the Veterans' Department six weeks to answer your letter," Gingrich had declared at the Republican convention in Houston in 1992. "We Republicans see the efficiency of Wal-Mart and UPS; and we want to change the government to be as courteous, efficient, speedy, and effective as those companies. The Democrats see those companies, and they want to apply litigation, regulation, and taxation to make sure the companies become more like the government."

Despite all his bluster and over-simplification, Gingrich really was on to something. Coming out of the '80s obsession with the Japanese global empire—remember, because they made all the TVs, we were doomed—Gingrich actually noticed Edwards Demmings and the Total Quality Management kick. Before it devolved into a cultish collection of catchphrases, American companies were using TQM to drive corporate restructuring. Stripped down, such restructuring was simply the realization that throwing more money or more headcount at a problem might not fix it, that process matters as much as inputs.

When the proverbial perfect storm of factors—redistricting, Democrat scandals, Clintonian overreach, midnight basketball—swept the Republicans into control of Congress in 1994, they carried a fragment of this private-sector wisdom with them. Official Washington's obsession with the money fix was temporarily at an end. Very temporarily.

Focusing on the content and process behind government programs did lead directly to the landmark welfare reform bill that Clinton signed in August 1996. However, it turns out that not spending money cannot compete with spending money, particularly if it is other people's money. It is the classic public choice problem of modern government.

And that is where we stand now. The key to staying in federal office is polling to find out what your constituents want more of and then endeavoring to route more money toward that thing. If your opponent counters, double-down. Build two bridges to nowhere.

Not surprisingly, a new Pew Research Center polls shows that only 2 percent of respondents view federal deficit spending as the biggest issue facing the nation. Do not expect that to change until the federal value-added tax kicks in long about 2015.