Hopes are high that a new Republican-led Congress will rein in the profligate spending of the Obama administration; sadly, Cato Institute senior fellow Michael Tanner cautions dialling back expectations, reporting ‘there are already troubling signs that Republicans are slipping back into their big-spending ways.’ If they want to continue in office and aspire to capture the White House, they should remember one of Margaret Thatcher’s iron laws: ‘conservative governments which put up taxes lose elections.’
There had been some promise that America’s fiscal outlook was looking up. In June 2009 the United States officially passed out of recession. Then, in 2013 a bipartisan budget sequestration was agreed, in exchange for passing a spending resolution to avert a debt-ceiling crisis. Cuts were made across the board, angering pro-welfare Democrats and pro-military Republicans, but the deficit nevertheless decreased.
Government spending has declined as a share of GDP, thought it still remains higher than it was in 2008 before President Obama took office [Tanner writes]. This is partly due to the expiration of stimulus spending and the repayment of TARP, but it also owes to sequestration and other Republican efforts to hold down spending growth. From 2010 until 2014, federal spending grew at just slightly more than 1 percent annually.
Equally encouraging, in the three elections from 2010 to 2014, Tea Party republicans were elected to Congress. Taking their name from the Boston radicals who protested against British colonial taxes in 1773 — and an acronym that also translates as ‘taxed enough already!’ — this Tea Party caucus acted as the conscience of the Republican party, focusing them to adhere to constitutional principle and limited government of enumerated powers. But now, with the party in control of both Houses, prospects look grim, according to Tanner:
As early as next year, the CBO projects the deficit to begin rising again. By 2024, we will have returned to an era of near-trillion-dollar annual shortfalls. As a result, the national debt is expected to hit $26.5 trillion in the next ten years.
The horizon only darkens when factoring-in American monetary policy, with the Federal Reserve ending quantitative easing last autumn and the prospect of an interest rate rise. Sound money philosophers teach this is the necessary first step toward currency sanity, yet there will be the inevitable economic cleansing of ‘malinvestments’ made under loose money policies and state subsidy — a toxic tonic that will weaken a recuperating economy — and further proof of Adam Smith’s dictum that government distortions play havoc with the equilibrium of a dynamic marketplace.
It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the œconomy of private people... They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will (Wealth of Nations, II.iii.36).
Americans for fiscal sanity have little hope from a Congress where ‘liberal’ Democrats and ‘moderate’ Republicans dominate, and where a GOP caucus revolt is penalised for admonishing its leadership. Speaking at the Heritage Foundation in 1997 on ‘The Principles of Conservatism’, Thatcher said:
If you believe that it’s business success that creates prosperity and jobs, you leave business as free as you possibly can to succeed. If you think that it’s governments—taxing, spending, regulating and printing money—that distort the business environment and penalise success you stop government doing these things. If, at the deepest level, you have confidence in the talent and enterprise of your own people, you express that confidence, you give them faith and hope.
An election in 2016 of more fiscal conservatives and a Tea-Party sympathetic president can give the American people that confidence — that faith and hope — and save them from impending economic collapse.