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Overstimulation By: Jon N. Hall
FrontPageMagazine.com | Wednesday, February 11, 2009


When Democrats campaigned to retake Congress in 2006, they ran on PAYGO.

PAYGO (pay-as-you-go) is a commitment to not expand the federal budget deficit. With PAYGO, spending for new programs would be “deficit-neutral,” as it would be offset by cuts elsewhere in the budget. Nancy Pelosi said she was committed to PAYGO and wanted PAYGO to be “the law of the land.”

Fiscal Year 2007 began October 1, 2006, when the Republicans were still the majority party. The federal budget deficit for FY 2007 was $162 billion. The Democrats have been in control of the budget for the last two fiscal years, and the deficit for FY 2009 is now estimated to hit $1.2 trillion. So, whatever happened to PAYGO? Unfortunately, PAYGO seems to be dead.

When the dimensions of the financial crisis became apparent in September 2008, pundits opined that the Democrats’ plans for universal health care and other new programs would need to be shelved; there just wasn’t any money for new spending.

But now the Democrat Congress tells America that the economy needs a “jolt,” a “jumpstart,” a stimulus bill entailing massive deficit spending. At a conference for House Democrats on February 5, President Obama mocked those who differed with him on the stimulus bill:

So then you get the argument, "Well, this is not a stimulus bill, this is a spending bill." [Dramatic pause.] What do you think a stimulus is? That's the whole point.

If mere deficit spending could produce an economic stimulus, then America should have been stimulated every year since 1930. The most generous accounting for the federal budget (the “unified budget”) shows that Congress produced 12 balanced budgets in 79 years. There were three immediately after World War II; four in the 1950s; FY 1969; and four during the recent bubble economy, FY 1998 through 2001. So during the last 40 years Congress has stimulated us for 90 percent of the time.[1]

Before we plunge into this brave new world of trillion dollar deficits “for years to come,” we might do well to remind ourselves how we came to our sorry state. Debt—by government, business, and households—is what got us into this mess. So it seems counter-intuitive to think that debt is what will get us out of it. Nonetheless, New York Times columnist Bob Herbert assures us, “There is broad agreement that we have no choice but to go much more deeply into debt to jump-start the economy.”

“No choice,” you say? But what if the “received wisdom” is wrong? What if the various stimuli don’t work and all we end up doing is adding trillions to the national debt without solving the underlying problem? Perhaps this kind of stimulus is itself the problem. 

The American people understand this instinctively, pulling back, cinching their belts. Many used their stimulus checks last year not to stimulate the economy by buying things but to pay down debt. American households seem to be embracing the “Old Verities” of thrift, postponing gratification, living within one’s means, self-denial, caution, and, yes, paying-as-you-go.

Then are questions of whether the items in the stimulus bill are stimulative, and many of the items do no kick in for years. If Congress must “do something,” why not lower the payroll tax? That would provide immediate relief. How about lowering the corporate income tax rate? America has the second highest corporate tax rate in the world. How about creating incentives for manufacturers to move back home? If Congress wants to get citizens working again, how about repatriating a few million illegal aliens?

At a minimum, Congress should not stimulate government borrowing. Harvard’s Niall Ferguson writes:

The delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression. Yet that is precisely what most governments currently propose to do.

Ferguson’s solutions provide the counterpoint to Bob Herbert’s “broad agreement.” 

Is there any hope for the resurrection of PAYGO?

PAYGO was a sham from the beginning. Democrats don’t cut spending. Of the 12 surpluses since 1930, only those for FY 1947, 1948, and 1960 coincide with cuts in “discretionary” spending. This year’s estimated deficit of $1.2 trillion, together with the $819 billion stimulus bill, is more than all federal spending for as late as FY 2002.

“Uncharted waters” does not begin to do justice to where Congress is taking us.

ENDNOTES:

[1] To confirm my figures, check out the latest budget history from the feds, toggle Bookmarks on the left and click on the third item: Table 1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (–): 1789–2013.

Jon Hall is a mainframe programmer/analyst from Kansas City.


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