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Budget Deal Agreement and State of the Union Address Continue to Neglect Debt and Economy

In the lead-up to the State of the Union...a briefing theme was that President Barack Obama has little appetite for a debt reduction deal and no plans to further tackle deficit reduction.
--Huffington Post

We're getting our $1.1 trillion discretionary budget deal this week, officially ejecting the sequester that alone was cutting spending. President Obama has already pivoted to an "income inequality" agenda.

My normal stance is that if Washington isn't addressing regulation, it's missing the biggest impact government has on the economy.

But it's worth commenting on the failure to control spending and the ceaseless expansion of the state because of the constant interplay between spending and regulation.

They reinforce one another in inflating what is already the largest government on earth.

Before every spending or regulatory action, Congress should ask, “How is this ‘necessary and proper’ to carry out an enumerated or delegated power,” as the Cato Institute‘s Bob Levy would say.

Instead, the budget agreement broadly affirms a modern American spending and regulatory state no longer constitutionally barred from whatever intervention it fancies. The "silken bands of limited government" established by the founders are illegal.

Of course, as far as a balanced budget is concerned, it’s important not to rally around philosophically marginal virtues: Washington could consume 100% of the nation’s wealth and still technically retain budget balance; but liberty would have long since departed.

So one can’t call for a balanced budget without emphasizing an effective one’s prerequisite: a considerably smaller government constitutionally limited to a few tasks bound by the recognition that a government's core function is force.

That recognition is absent. Republicans, despite their reputation as the party of smaller government and free markets, embrace the same redistributionist and regulatory ethic of the Democrats. They insist that federal funding is essential for "basic science" and for big assets like supercolliders, space stations, computer security, energy programs, infrastructure and nanotechnology. Republicans applaud the corporate welfare of antitrust regulation.

Tea Partly, not Tea Party, is the rule.

Unlike what we get in this new budget deal that affirms Obama's transfer-state, America requires lean government, leadership that abhors overspending and over-regulating, and foremost, the freedom for citizens to opt out of big government programs like Social Security and Obamacare.

But no, ours is the era of big borrowing and big regulation and big executive power untethered by Congress or the Constitution -- the latter to be loudly proclaimed by Obama in the State of the Union Address.

Back during Balanced Budget Amendment debates of the 1990s, late-Sen. Robert Byrd (D-W.V.) contended that even Thomas Jefferson supported government borrowing. You know, he did the Louisiana Purchase, and was hypocritical and everything.

The story’s a little more interesting than that, with lessons for today's budget debates.

Upon reading the new federal Constitution (which proved more “national” than “federal”; a federal Constitution would have left most powers with states), Jefferson did indeed propose a change in an email to John Taylor (OK, it was only a letter):

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution. I mean an additional article taking from the government the power of borrowing.

So despite Jefferson’s written support of a prohibition on government borrowing, balanced budget opponents gloat that Jefferson borrowed heavily to finance the Louisiana Purchase while president from 1801-1809.

In his 1803 State of the Union address, Jefferson acknowledged that debt and declared:

Should the acquisition of Louisiana be constitutionally confirmed and carried into effect, a sum of nearly thirteen millions of dollars will then be added to our public debt, most of which is payable after fifteen years; before which term the present existing debts will all be discharged by the established operation of the sinking fund.

Note Jefferson’s promise that debts be extinguished by sinking fund, a concept to which Jefferson had declared allegiance earlier in 1785 with respect to Revolutionary War debts in a letter to Count Van Hagendorf:

It is made a fundamental that the proceeds [of the sale of our lands] shall be solely and sacredly applied as a sinking fund to discharge the capital only of the [national] debt.

Big spenders who invoke Jefferson leave something out; not only were “existing debts...discharged” under Jefferson, but a substantial surplus was obtained during each year of Jefferson’s presidency. Here are federal surpluses as a percentage of outlays and GNP during 1801-1808:

YEAR | SURPLUS (as % of Outlays, as % of GNP)

1801  | 37.69%, 0.8%

1802 | 90.74%, 1.9%

1803 | 40.90%, 0.8%

1804 | 35.63%, 0.7%

1805 | 29.06%, 0.6%

1806 | 58.71%, 1.2%

1807 | 96.28%, 1.6%

1808 | 71.76%, 1.5%

So while Jefferson abandoned the “no borrowing” principle in deed, he more than certified in deed his conviction that the government recognize bounds and pay as it goes, a particularly impressive accomplishment when the young government was relatively unsettled and unorganized.

Like Jefferson, Washington may borrow, but must cover its debts.

But a chasm has opened between reasoned borrowing and modern chronic deficits and intervention.