One of the most encouraging trends of the last few months has been conservatives finally admitting what most of us have always known: The “starve the beast” strategy—the idea that the best way to shrink the size of the federal government is to continually keep taxes low—doesn’t work. It never has:
Under Reagan, spending rose 22 percent (adjusted for inflation) and the government debt tripled. But Republicans have stuck to the strategy ever since.
When they began, this approach seemed worth a try. But 30 years later, confirmation is hard to find. Like Reagan, George W. Bush reduced income tax rates. In spite of that, inflation-adjusted federal outlays this year are 60 percent higher than they were the year Bush became president.
Advocates could write off this experience as a fluke or claim that without tax cuts, Big Government would be Ginormous Government. But new studies from economists at opposite ends of the political spectrum leave little doubt that even on half-rations, the beast never fails to feast.
The first documentation of this phenomenon came from the most unlikely source — William Niskanen, who chaired the president’s Council of Economic Advisers under … Reagan. In 2006, he examined the evidence and mournfully admitted that “starve the beast just does not work.”.
No doubt there will still be some magical realist-style conservatives who will scoff at the empirical evidence and argue that we just haven’t given the strategy enough time. After all, we’ve only been trying it for thirty years and the federal government has been around since 1790.
May 3rd, 2010 | 11:44 am
The Fed makes this possible. Monetary policy is secret taxation. It lets our government spend whatever it wants: fund wars across the globe, pump up entitlements back home, avoid politically unpopular taxes…
May 3rd, 2010 | 11:48 am
Of course, this conclusion doesn’t mean that lower taxes isn’t desirable, even normatively or as a means of increasing government revenues, as the evidence on the latter point is quite strong. See The Reagan Years. However, the last thirty years has demonstrated that Congress’ capacity to spend far outstrips America’s ability to pay. Therefore, it seems that those committed to smaller government and less spending will simply have to vote for smaller government and less spending, the results be darned, or materially contribute to our ever-ballooning national debt, and coming national decline. But then life is full of difficult choices.
May 3rd, 2010 | 12:09 pm
Isn’t a lot of this spending driven by entitlement programs, some of which predated the Reagan era, such as Social Security and Medicare? These are (predictably) increasing because of demographics (i.e., retirement and aging of Baby Boomers). To cut back on these is extremely difficult.
May 3rd, 2010 | 1:33 pm
Re: “No doubt there will still be some magical realist-style conservatives who will scoff at the empirical evidence and argue that we just haven’t given the strategy enough time.”
Actually it is the “realist” conservatives who argue that government is inherently undisciplined regardless of the Party in power. They understand the Reagan has to be desanctified in order to enable genuine conservative philosophical renewal.
Both Parties are inherently corrupt. Both are Free Lunch and Free War advocates with the Democrats being more Lunch and the Republicans being more War. They take turns stirring the same pathological government pot.
Mainstream Republican neo-consevratism has delegitimized itself with its budget busting Wars to Nowhere and blind advocacy of metastasized “financial innovation” as the mechanism for economic security. I.e., Wall Street shoving electrons to create wealth.
A true realist like Rep. Paul Ryan does not stand a chance against the neo-con cronies who continue to grease the skids of their own pet dollar sinks like the Merchant of Death DoD contractors.
Unfortunately for voters, it’s a vicious cycle of out of the pot into the fire and back as Democrats and Republicans oscillate in and out of positions of political power. Each contributing to our Death Spiral in their own way.
May 4th, 2010 | 8:16 am
@Jane: last I saw, military expenditures comprise about 70%+ of the federal budget. About 20% or so might be Medicaid or Medicare.
I’m glad that due credit has been given to the Fed for our spending habits. But we shouldn’t forget legal tender laws that compel American citizens to act as if the greenback had some real value. A few months ago Drudge had an article on how Russia and the Middle East were thinking of reducing their exposure to the greenback, and I found myself envying the Arabs and the Russians for their freedom on this issue. If Americans want to store wealth in alternative currencies or even (gasp!) commodities, they get socked with capital gains taxes and whatnot.
May 4th, 2010 | 8:52 am
I’m not sure I understand. To me, this piece reads as if “didn’t do it” = “doesn’t work when you do it”. Can we define something as ineffective if, in fact, we have not actually done the “something”.
With apologies to Chesterton, I believe that “starve the beast” has not been tried and found wanting. It has been found difficult; and left untried.
May 4th, 2010 | 10:43 am
@Sean: The point brought out by the commenters, and implicit perhaps in Mr. Carter’s post, is that cutting the income of the federal gov’t (e.g., tax cuts) is not very useful if the federal gov’t can literally create money out of thin air and run arbitrarily high budget deficits every year.
If the gov’t were tied to only minting silver and gold currency as in the Constitution, or at least didn’t have legal tender laws that forced us to use their funny-money, then yes, the beast could be starved. Until then, however, legal tender laws and the priesthood of the Federal Reserve have decoupled the federal gov’t from meaningful budgetary constraints.
May 4th, 2010 | 1:33 pm
To JerryN – while figures differ, consistently Social Security and Medicare/Medicaid are about 20 percent of the budget each, and with additional entitlement programs (17 percent) come to 57 percent of the budget, and rising. Defense/Homeland Security are typically shown as 23 percent (discretionary). On a historic basis, Defense expenditures have dropped as a share of the budget since 1950. I am not advocating guns over butter, but any serious observer of the Federal Budget sees the need for reforming entitlements. However, given the growing expectation that government will continue to provide social benefits makes it extremely difficult to roll these back, and the new healthcare/health insurance reform makes it harder still.
May 4th, 2010 | 5:26 pm
@Jane: last I saw, military expenditures comprise about 70%+ of the federal budget. About 20% or so might be Medicaid or Medicare.
Who ever did the sums for you needs a refresher course. Military expenditure has comprehended about a quarter of federal expenditure in recent years and fluctuates considerably accourding to exeternal circusmstances. Social Security and Medicare have been about a third of federal expenditure and are on autopilot due to demographic trends. It is necessary to render these sorts of entitlements actuarially sound, which they are not at present. The same imperative is not present with regard to military expenditure, which is discretionary year-to-year (more or less).
May 4th, 2010 | 9:54 pm
Whups, thank you for the correction. (It was my memory that was at fault, not whoever did the stats I saw before.)
May 4th, 2010 | 10:40 pm
The relative proportions of guns vs. butter expenditures is really a red herring to Jerry’s and Veritas’ point. Fiat currency has allowed our federal government to spread its tentacles wherever it pleases without real concern for the costs. When you can print money out of thin air, why choose betwen guns and butter? Why not have both? The federal government has a credit card with no apparent spending limit, and it hasn’t been called upon to pay its debts. If it ever is, we’re all in trouble. No amount of belt tightening in either military or entitlement spending can stop the widespread suffering that quick and severe devaluation of the dollar would cause.
Connecting to the original post, what good is reducing or cutting off a kid’s allowance if he has an unlimited line of credit? You can’t starve a beast that can make food appear at will. (Sorry to mix so many metaphors)
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