For a quarter century, the Congress has been under rules imposing a balanced budget. They have been changed and rewritten for years. You can still deficit spend, but you have to call the spending an emergency. So, the government considers virtually every budget item an emergency. There’s always a reason to spend more money. There’s rarely a compelling reason to spend less.
I understand why people think now is a bad time to reduce government spending. Federal money has an effect on the economy. People and businesses use their credit (cards) to pay for things they can’t afford immediately. I used a student loan to buy my first car. That car got me to a job that pays the bills. The problem is that the government rarely uses debt to buy assets, but to meet obligations the current revenue can’t match. That’s the worst kind of debt.
So we fall into this kind of Keynesian spiral. Deficit spending is stimulative, but taking it away can be disruptive. In forty years, we have only had four budgets with surpluses. If we can only average a positive balance one out of every 10 years, we are in serious trouble.
In some ways, I think the push to bring down deficits is psychological. People and businesses in the private sector see their access to credit diminishing. Many are taking it upon themselves to wean off credit whenever possible. They would welcome real stimulus toward them by the government. Instead, they see a trillion dollars go to the banks and a trillion dollars in stimulus go effectively nowhere. This stimulus effect preceded 7% unemployment and concluded with 10% unemployment. If this were the definition of government working for people, it would be fired.
If Gramm-Rudman of 1985 is any indication, the desire for deficit reduction comes once a generation, when government spending it at its height. If the current plan is a bad idea, we need alternatives, not spending without limits. We could tie austerity to GDP, unemployment or corporate profits, if necessary. Right now, the only time something happens is by the will of the people. Even if Keynesians don’t like it, the will of the people is for fiscal accountability.