Washington Wednesday: The federal budget

MARY REICHARD, HOST: It’s Wednesday, the 5th of June, 2019. Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Mary Reichard.

MEGAN BASHAM, HOST: And I’m Megan Basham. First up, Washington Wednesday.

If you go to usdebtclock-dot-org, you’ll find the total amount of debt the U.S. government has piled up over the years. It’s currently over $22 trillion. That’s about $68,000 per citizen.

The national debt was last at zero during the Andrew Jackson administration. That was nearly 200 years ago—well before the Civil War.

REICHARD: So why did the federal debt rise to such an eye-popping number? Well, it’s because every year the federal government spends more than it collects. That’s what the federal deficit is—the annual amount added to the national debt.

The deficit spiked to historic levels after the Great Recession—well over $1 trillion per year added to the debt. Then it trended downward four straight years.

But since 2016 the federal deficit has been on the rise again. This year it’s poised to once more break the $1 trillion mark.

BASHAM: So why is the deficit getting so much worse during an economic boom? Several reasons. One is rising interest rates. That makes it much more expensive to pay interest on the debt.

But it’s also the age-old problem of government spending. Last year Republicans and Democrats came together to pass a budget-busting deal to fund the government. It added another $300 billion to the taxpayer tab. But it only kicked the budget can down the road for 18 months.

REICHARD: Now lawmakers are just four months away from another funding deadline. And reports are they’re close to reaching a budget deal both parties can live with. No one knows the details yet, but analysts say it’s sure to include more spending increases. It’s also likely to include a suspension in the debt limit until after the 2020 elections.

Here now to talk about what that means is Marc Clauson. He’s a professor of history and law at Cedarville University in Ohio. He previously worked for West Virginia’s Department of Finance and Administration, so he knows his way around a spreadsheet.

Professor, good morning!

MARC CLAUSON, GUEST: Good morning! How are you?

REICHARD: Fine, thanks. OK, I want to start with the federal deficit number. It may break the $1 trillion mark again this year. That’s such a big number—it’s hard to really comprehend. But it does have real-world consequences for the U.S. economy. Can you explain what those are?

CLAUSON: It does. Well, for one thing, the more we borrow—and that’s the normal way that we spend our money—the more we borrow, the more we tend to suck out of the economy that could be used for other purposes, borrowing in the private sector, for example. Basically the taxpayers are going to have to pay it back over time. That means future generations, typically, are going to have to pay it back. We can borrow today, but they’re the ones saddled with the burden of today to pay back tomorrow.

REICHARD: We’re starting to hear about sequestration again. That’s a set of mandatory spending cuts that started kicking in a few years ago. They played a big role cutting the deficit during the second half of the Obama administration.

A new round is set to hit this fall, and both Republicans and Democrats want to stop it. Why is that?

CLAUSON: Well, since—oh, I would guess—roughly the 1960s pretty much, Republicans and Democrats have realized that they can use the budget in order to essentially get reelected. If you assume that politicians want to get elected and you assume that to do that they need to show their constituents that they have done something for them and they all want to spend money all the time. The incentive is always to continue spending. And there is no actual incentive right now in congress to restrict that, to slow that down or to stop it. That won’t happen unless they’re forced to do that in some way.

REICHARD: So rather than keep the agreed-upon cuts, lawmakers are wrangling over increases. Democrats want more domestic spending. Republicans want more military spending. No one is really talking about cutting back at all. And you’re saying it’s because of the political incentives.

CLAUSON: Well, that’s right. The incentives are completely missing for restricting spending, for being frugal at all in spending. Because if you do, you risk that money that you might have spent on your constituents is going to be sent to someone else’s constituents and you’re not going to be helped by that to get reelected and they may be helped by that. So the incentive is you scratch my back, I’ll scratch your back. You vote for my spending project, I’ll vote for your spending project. We’ll just keep doing that all the time. It’s essentially a Keynesian approach to spending, except it’s extended to all the time. Just all the time. Rather than during war time or during depressions. It’s all the time, now.

REICHARD: And mortgaging our future generations to it. Well, during the Obama years Republicans had a rule that spending cuts would have to go with any increase in the debt ceiling. That’s the amount the government can legally borrow. Do you think we could see an effort along those lines later this year?

CLAUSON: We might see it, but, again, the incentive is missing. The aspirations are good, but they never seem to last. Again, the incentives are missing to produce that. And what you really need in a case like this to produce a lasting kind of situation that would be restrictive of spending, that would restrict spending properly and force Congress to make the hard decisions about spending. Otherwise, what you just talked about—the debt ceiling and so forth—those are just nothing but nice aspirations. That’s all they amount to.

REICHARD: So, something like the convention of states movement, you think?

CLAUSON: Well, if you’re going to do anything on this, you desperately need a constitutional amendment that doesn’t just require a balanced budget, but requires spending limitation each year. So, for example, you wouldn’t spend more than 1 percent of the next year of the budget that you had this year or something like that. And maybe you would always spend more in times of war or depression, something like that. Something that would be restrictive, legally binding, and also enforceable in a court of law.

REICHARD: You have some experience with state budgets. How different is this process at the state level? Do state capitals handle things differently than they do in Washington, D.C.?

CLAUSON: Well, depends on the state. In the state where I worked—in West Virginia—we had a constitutional requirement that we balance our budget. So, even though that didn’t necessarily restrict spending, it did have some effect on the money we spent each year. We were required to do that otherwise we could have that enforced against us in a court of law. The federal government has no such restrictions. I remember we would have, we would be short on revenue and we’d have these long meetings every day of the week and we’d go through all the requests for spending. We said, “Oh, should that go through? Should that go through?” Across the board cuts, things like that. We had to do it, so we did it.

REICHARD: Right, yeah. Hard decisions. That’s what politicians are supposed to be doing. You’re also a historian, so I’m wondering if there are comparable points in the past where we faced a similar money problem? And, if we did, what happened?

CLAUSON: Yeah, we’ve had depressions. We’ve had war time. Up until the 1930s, roughly—1930s, 1940s—we tended to borrow heavily in war time, and then immediately try to pay it back after that period passed, that situation passed. And we were fairly successful. Our debt never accumulated all that much until the Roosevelt era, the Franklin Roosevelt era of the 1930s and 40s, particularly the war time. So, of course, we expected we’d spend a lot more than we could take in and we borrowed a whole lot of money in that situation. But lots of people expected we’d pay that back when, in reality, we didn’t. We continued to borrow after that. And, again, for those incentives that didn’t exist, that made it easy to do. Politicians really got ahold of John Maynard Keynes’s economic thought and they just modified it for their own use. And said, well, Keynes always said spend, borrow all you want to solve the depression problem or to fight the war, that’s fine. Afterwards, pay it back. But, the politicians said, “Let’s spend. Don’t pay it back.” That’s essentially how they adapted it to their own uses after WWII. Basically it’s a watershed event. So, between 1967 and today, we’ve had only one budget surplus in a given year. And before that we only had—between ‘45 and ‘67—we only had half of those years in a surplus and half in a deficit. So the trend was beginning back then. The trend accelerated in the 60s. We’ve never looked back since.

REICHARD: Marc Clauson is a professor of history and law at Cedarville University, a Christian college in Cedarville, Ohio. Thanks so much for joining us today!

CLAUSON: Thank you! Good to be with you.

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