Shirley Tipton: It’s time to remember we can’t spend our way to prosperity
July 31, 2010
Editor’s note: Each Saturday leading up to the Aug. 10 primary elections, The Aspen Times will publish a point/counterpoint series, produced by local Democrats and Republicans. Today marks the fourth installment of the series, with each side addressing the national deficit from their respective party’s perspective.
Imagine your child racked up a $42,000 credit card bill (which you have guaranteed), but didn’t have the income to pay it off. Would you cancel the card?As taxpayers, we are in that very situation as the annual budget deficit is projected by the White House to hit this year an all-time high of $1.47 trillion, which is 11 percent of GDP, compared to the 45-year historical average deficit of 2.9 percent. Furthermore, the national debt (not including unfunded and off-balance sheet liabilities forentitlements like Medicare/Medicaid and Social Security which exceed $85 trillion) now stands at $42,751 per citizen. The U.S. Treasury is paying for the dramatic increase in government spending by borrowing 41 cents for every dollar spent. The national debt was about 40 percent of our total economy at the end of 2008, but will explode to over $13 trillion or 62 percent of our economy by year’s end, a percentage that is double the historical average. Given the trajectory of government expansion and spending on entitlements, the Congressional Budget Office projects that debt will more than double to 146 percent of GDP by 2030. Given its proportions, Admiral Mike Mullen, Chairman of the Joint Chiefs, declared the national debt to be the greatest threat to U.S. national security.As responsible Americans, and the fiduciaries for our children and grandchildren who will be saddled with this financial anchor, do we allow the government to continue racking up massive deficits and national debt, or do we pull the credit card now? That is one of the defining questions for the upcoming November elections.Many in Congress argue, as they did in the 1930s, that deficit spending will cause the economy to grow, revenues will increase, and the bank accounts will come into balance. They argued for the 2009 $862 billion stimulus bill with the promise that unemployment wouldn’t go over 8 percent, while without it, unemployment would hit 10 percent. Despite those assertions, the unemployment rate has hovered between 9.5 percent and 10.2 percent. During the 1930s and despite the New Deal, the unemployment rate never dropped below 20 percent. Why do we continue to send folks to Washington who repeat mistaken policies? The problem lies with lawmakers who believe the Keynesian economic theory that deficit spending puts new dollars into the economy through government spending and increases demand spurring economic growth. Economist Brian Riedl reports, “Today, lawmakers cling to estimates … that on average, $1 in new deficit spending expands the economy by roughly $1.50.” Riedl goes on to say, “If that were true, the record $1.6 trillion in deficit spending over the past fiscal year would have already overheated the economy.” And there would be no reason to stop the spending. Every time Congress claims that dollars spent will create new jobs, they fail to acknowledge that a large portion of every dollar spent must be borrowed thus removing dollars from another part of the economy and reducing jobs in the private sector. The borrowed dollars create temporary government jobs (like census workers) when the same dollars could have created longer term jobs in the private economy. The Keynesian theory has been tested, measured, and proven flawed as famously evidenced by FDR’s Treasury Secretary Henry Morgenthau’s testimony to Congress in 1939 in which he admitted that the New Deal spending programs had failed. He said, “We have tried spending money. We are spending more than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot!” Government spending does not create sustainable economic growth. Economic growth occurs when we produce more. Highly productive, skilled American workers have proven time and again that we can, with education and motivation, produce more quality goods and services than any other country’s workforce. Government cannot respond quickly enough to boost production. American business, large and small, will respond given incentives and a business and job-friendly climate. In the short-term, lower tax rates and reduced regulation will help create the conditions needed to spur investment and job creation. Long-term reinvestment in business, while maintaining an educated responsive workforce, will support economic growth and a sustainable economic recovery.The New Deal was a failed government policy that emphasized spending tremendous amounts to grow the economy and increase employment. After eight years, the U.S. economy was still stagnating, while the rest of the world had substantially recovered. It took the mobilization of the war effort to end the Great Depression in the U.S., and a dramatic decrease in government spending after WWII to get us on the road to economic recovery.The current reincarnation of the New Deal is similarly failing for the very reason that FDR’s Treasury Secretary Henry Morgenthau discovered – deficit spending doesn’t create long-term prosperity. Only private sector growth, the foundation of American economic vitality and strength, can create long-term prosperity. And that’s information you can take to the ballot booth.
A registered Pitkin County Republican, Shirley owns a small business and is a former two-term La Plata County commissioner.