OnePeople 2004 Federal Budget Wrapup, Part I

The United States’ Federal Budget is where politics, theory and rhetoric collide with harsh reality. In its 2,866 pages is encoded an immensely complex set of priorities, commitments and compromises which together will keep the United States operating for an entire year. The 2004 budget is especially interesting (relatively) because it was designed by a strongly ideological White House who has the unusual advantage of controlling Congress. This means that the approved budget is a much less about the compromises and more about the priorities of the Republican party. For that reason, this year’s budget is immensely instructive. OnePeople obviously has nothing better to do, so we’re going to walk you through this year’s budget, highlighting areas of interest that you could easily have skimmed over in your favorite periodicals. Since we’re almost as lazy as you are, we haven’t actually read the budget — we’re relying on a number of different sources, which we’ll refer you to when the opportunity presents itself.

We’ll begin the series with some high-level analysis, turning our perceptive gaze towards the summary prose that precedes the tables and line-items of the budget proper. As it does each year, the Administration uses this prose to explain, justify and illustrate its own fiscal policy. It makes for an awfully big target.The Philosophy

The Bush Administration, without surprising anyone, is an enormous fan of the power of free markets. It believes that private industry is inherently more efficient than the public sector. Since you all diligently followed our recommendation to watch the Controlling Heights series on PBS, you understand that this philosophy has gained a great deal of ground in the last decade or two, as socialist and mixed economies began to fail under their own bureaucratic weight.

The question of how much control a government should have over markets was once framed as a choice between Marx-inspired command economies and free markets. Alongside communism and the command economies’ focus on the general welfare, laissez-faire capitalism was forced to make concessions. Rather than let markets run amok, as they did before the Great Depression, capitalist systems had to ensure that markets were stable and predictable. Without these controls, markets can fluctuate wildly, leaving the poorest consumers in shambles. To prevent this, markets were moderated by government intervention. Governments followed the rules laid out by John Maynard Keynes. Keynesian economics dictate that a government should spend against the economy: when things are going well, the government should leave well enough alone. When economies begin to fail, though, the government should step in and begin spending to stimulate the economy. The Keynesian model worked phenomenally well until the mid-1970s. Starting with the Oil Crisis and then pernicious “stagflation,” the Carter Administration proved incapable of spending its way out of an economic death-spiral. Economists began to have serious doubts about the universal effectiveness of Keynesian policy.

It was in these dangerous years in which the current Administration’s economic principles were forged. Once Reagan and Thatcher were elected to office, privatization and the miracle of laissez-faire capitalism seemed the only answer. The current Bush Administration, led by the first President with a Master’s degree in Business Administration, are stalwart adherents to this radical pro-market philosophy.

Spending What You Don’t Have

This philosophy, which is marked by a deep mistrust of government spending, has had a direct effect on this year’s federal budget. On the assumption that money in the budget is as good as wasted, and that the money is more wisely spent by the taxpayers directly, the Administration was able to secure $350 billion in tax cuts, on top of previous round of cuts two years ago. This is less than the $750 billion initially requested, but still significant. These cuts have not found their way into the budget, though, which means that the government will have to borrow money to make up the difference. This means more of the dreaded deficit spending that plagued the country in the years following the Reagan Administration. When asked about the ill-effects of the resulting debt load, the Bush Administration responds that the cut will create an economic stimulus from the newly tax-free consumers, which will result in more tax revenue, which will recover some of this shortfall. This argument has created miles of commentary, and we won’t engage it here.

[This is where we start unabashedly cribbing from Thomas Frank’s outstanding piece in the June 2003 issue of Harper’s. — ed.]

Suffice to say, this isn’t addressed in the budget’s prose. Instead, the deficit is blamed on the speculative bubble of the 1990s, the previous Administration’s watch. There’s no mention of the two massive tax cut packages. Instead, we’re told that the budget would be in deficit because of the recession anyway. We’re not told that the deficit is worse because of the tax cuts, though that’s demonstrably true.

Social Security and Medicare

Instead, under the heading “The Real Fiscal Danger“, we’re told that the nation will be bankrupted by Social Security and Medicare real soon now. This is not a new issue, but now the Administration has a solution in keeping with its radical economic liberalism: privatization. Instead of leaving the trust money with the government, taxpayers should be able to invest the money directly in the stock market. On its face, the idea sounds moderately dangerous: government-mandating savings are being left to the vagaries of an increasingly deregulated market… one that just suffered a massive wave of scandals, to boot. The technical question of how to insert trillions of dollars into the stock market without giving the exchanges an embolism is still unresolved. Nevertheless, the Administration wants you to know how near the danger looms: “the combined shortfall in Social Security and Medicare of nearly $18 trillion was about five times as a large as today’s publicly held national debt.” This is wildly misleading, though — the same document claims that Social Security will actually have a surplus for the next 14 years. Medicare is certainly in trouble, but more on that soon. Suffice to say: the $18 trillion number actually comes from a 75-year projection, which is absurd on its face. Earlier in the budget, we’re told that projections past five years are impractically speculative, and should be ignored. This works nicely when you’re trying to obscure the effects of a massive tax cut in recession, but makes the immediacy of the Social Security problem very difficult to illustrate, so perhaps we can cut the authors some slack.

As for Medicare, the system is certainly in trouble, but this has nothing to do with government inefficiency. Instead, this has to do with the skyrocketing cost of medical care. The silence from the Administration on this issue is deafening.

The Government That Hates Itself

We also find a anti-government vitriol. In “Governing With Accountability“, we’re told that federal agencies are not beholden to the laws of the market and are therefore inefficient and/or incompetent. they have “not managed themselves well enough to know whether they had the right people with the right skills to do the work.” “Pay and performance are generally unrelated.” This “Washington mentality” has “wasted billions of dollars.”

This analysis seems so silly that it’s hard to believe the Administration isn’t a laughingstock. The irony is that the policy’s flaws are invoked by the Administration itself when it explains the Defense Department budget. The thinking is that the Defense Department cannot be held to free-market standards, since it is not meant to make money. It is, by design, inefficient and redundant. That’s what makes the military so effective at what it does. To apply free-market principles to military spending is comparing apples to oranges. The military is the only government activity that is given this exception, though.

We feel some hyperbole coming on, so we’ll leave the analysis for the moment. Keep an eye out for out next piece, which will be significantly lighter on the plagiarism of Mr. Frank, and instead turn our eye to the spending on the Department of Agriculture.

6 thoughts on “OnePeople 2004 Federal Budget Wrapup, Part I

  1. Yeah I’m consistently blown away by how deep this government wants to get in everybody’s lives yet at the same time preach the rhetoric of anti-big government.

    And also I wouldn’t mind in the least more money coming out of my paycheck now to stave off the deficit for my kids. I mean come on, yeah I might be saving money but the country’s deficit is my deficit, right?

    Man, I need to take an economics course or something.


  2. If only you all could understand capital, how it is generated, and how it will affect our economy these amazingly “disturbing” facts about our budget wouldn’t be so hard to understand.

    Also, if you think that liberal politicians would use your money, generated through taxes, to pay against the federal deficit you really must not understand liberalism and the agenda most democrats have. This money would go into welfare programs, and other social programs to provide free services to the populous, namely the “underpriveleged.” Unfortunately, this money is not well spent as it only puts a stigma in the minds of the people it is trying to help. For more information on this phenomenon turn to Star Parker’s “Uncle Sam’s Plantation.”

    In order to continue improving the economy and be able to pay off our deficit the creation of capital is important. Capital, of course, is created when jobs are established, when businesses and corporations are founded, when entrepeneurs develop and market new products/services, and when people invest money in the market to continue the investment cycle that will continue to create capital. Don’t you think it is more difficult to do those things when so many taxes are imposed on such a level that it is debilitating to those people who would want to start their own businesses or would like to invest money in the market? Of course it is. So is it so strange to think that if we reduce taxes we can actually generate more capital and be more able to pay off our deficits? The economic strength of this country is dependent on citizens from all income brackets investing their money in attempts to generate money, or taking risks. Whether they buy stocks in the market, start a small business, or help support our through the purchase of the products and services of those citizens that are doing the first two, this is how capital will be created and our country’s economy will grow, shrinking our deficits.

    If you are not sure this will work and want to find out, re-elect Bush and you’ll see within a decade how much better off our economy will be than it is now due to the economic principles being used by our president.


  3. All I see right now is 3M unemployed and a half-trillion dollar deficit with no end in sight. Those 3 million have no means of capital, and their tax cut is as meaningless as it is vanishingly small. It was, in fact, a tax increase since the states had to compensate for all of the administration’s unfunded mandates.

    A tax cut could be a stimulus, but not when it’s financed by debt, wiped out by increased local taxes, and unsupported by consumers with capital.

    You only have half the equation, Von Hayek.


  4. To Brett M-

    If new markets, new businesses will solve all ills. Why are small businesses (the largest American Employer) so brutally attacked by this and all administrations.

    We do not receive a full deduction for health care benefits, we are limited in non taxable compensation/benefits to our employees and the budget further cuts the SBA. Meanwhile, the larger the business the bigger the welfare check!


  5. is free trade fair trade?why do we have a huge trade deficit?how come we lost over 50,000 jobs last year?will free trade destroy unions and collective bargaining thereby lowering americans high standard of living by companies simply threatening to move to mexico or china where labor costs and environmental standards are much lower?without tariffs how will american based companies be able to compete with foreign based companies who can create the same products but at a lower price?how will mexicans and chinese citizens be able to afford higher priced american products with there low standard of living?wouldn’t through tarrifs as president lincoln said be beneficial because the revenue created could lead to lower taxes for americans thereby stimulating the economy further?do we really expect foreign countries to uphold there side of the bargain?


  6. I’m trying to find out what the DEFICIT this country had, when President Reagan left office???
    I’m not sure what it was..But I.m led to beleive that our great grandchildren and their children will be paying this debt off in years and years to come..Does anyone have this information?? If so I would be gratefull for a reply..


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