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The Budget Debate Simplified

Tuesday, March 12, 2013

In the debate over government spending, two main schools of thought dominate airtime, but an honest account should include two more — today’s moderates and yesterday’s statesmen.

Government spending has been a hot topic as the opposing sides jockey for position in the budget debate. To the casual observer, it might seem to be just another battle between the two usual suspects: the Left and the Right, i.e., the Democrats and the Republicans. But that’s an oversimplification, because the debate over government spending involves at least four schools of thought, two of which are getting the bulk of the airtime.

To simplify the spending debate, we can see how each of the four schools of thought would answer three brief questions about government spending, as shown in Figure 1.

The three questions across the top provide a quick way to categorize just about any proposal for spending (or spending cuts). “Bridge A,” or the “bridge to tomorrow,” is the category for productive spending programs, those that eventually fund themselves either directly or by enhancing the private sector’s productivity. “Bridge B,” or the “bridge to nowhere,” is the category for nonproductive spending programs, those with costs that exceed their benefits, tangible and intangible. The third question addresses the waste in the defense budget: although such waste is universally denounced, there is a difference of opinion about what to do with the savings if the waste were eradicated, although that nuance rarely surfaces in a public debate that is dominated by the first two schools of thought.

I gave the four schools of thought names that are short and familiar (although the fourth school might require a bit of retrospection, due to lack of contemporary examples). The first two are at opposite ends of the polarized debate, but share a basic principle that “it’s all about the money.” In contrast, the last two share a different principle: “it’s not about the money, it’s about what we get for the money.” I explain this in more detail below. The first two schools of thought dominate today’s spending debate, and have all but drowned out the last two.

The “Far Left” School of Thought

Paul Krugman is one spokesman for the Far Left, a faction that tends to advocate more nondefense spending in general, because government spending provides a much-needed stimulus to demand in a sluggish economy. This school says it doesn’t matter what the nondefense spending is for, or how high the debt rises in an economy with underutilized capacity, because when the private sector stops spending, it is the government’s duty to fill the income gap — and to keep filling it as long as the unemployment rate is higher than around 3 percent.

Adherents to the statesman school believe national security is the fundamental, top priority of government.

To this school, it’s all about the money. Specifically, one person’s spending is another person’s income. Building any kind of bridge (A, B, or whatever) employs workers who would otherwise be unemployed. To the Far Left, it’s all about the money that isn’t flowing, but could be — if only government spending were high enough.

The “Far Right” School of Thought

By contrast, the Tea Party exemplifies the Far Right, the faction that says we are “out of money” — we are already taxed too much, and already borrowing too much — and we therefore can’t even afford to spend money on productive programs, let alone on bridges to nowhere or wasteful defense programs. This group keeps pointing out that the federal debt our grandkids will have to pay back stands at $16.7 trillion, or roughly $53,000 for every man, woman, and child, and that the need to get it under control may require blunt-force measures such as allowing the sequester to take effect or refusing to raise the debt ceiling.

To this school as well, it’s all about the money; in that respect, its adherents are in agreement with the Far Left. To the Far Right, however, it’s about the money we don’t have.

And that’s just about the extent of what makes it to the headlines, cable news channels, and Sunday talk shows. However, there are two additional schools of thought that deserve mention, if only out of respect for today’s moderate voices and yesterday’s statesmen.

The Moderate” School of Thought

A few voices on the Left and Right — moderate Democrats and Republicans such as Jeffrey Sachs and Joe Scarborough — split spending into at least two categories: productive spending and nonproductive spending. To the moderates, it’s about what we get for the money. To the moderates, spending money for a “bridge to tomorrow” is wise and affordable (because it is eventually self-funding), but spending money for a “bridge to nowhere” is stupid and unaffordable (because it is mismanagement of funds by the government). The moderates disagree with the Far Right about Bridge A and with the Far Left about Bridge B.

What about waste in the defense budget? The moderates, like everyone else, favor eliminating the waste. But they are not unanimous about what to do with it: some want to invest it in social programs they consider to be in the Bridge A category; others would prefer to use it to reduce the deficit.

Figure 1

In any case, the moderates are consistent: it’s not the money, it’s what we get for the money. Proceed with productive programs, even if borrowing is necessary, because they will eventually fund themselves directly or indirectly. Reject nonproductive programs because their costs outweigh their benefits, and reallocate the money saved to deficit reduction or to Bridge A programs.

The “Statesman” School of Thought

This is a special case, similar to (but distinct from) the moderate school. Presidents such as George Washington, Dwight Eisenhower, and Ronald Reagan belonged to this “statesman” school of thought, even though it has few advocates in today’s economic climate. Like the moderate school, the statesman school advocates government spending on productive programs, but rejects nonproductive bridges to nowhere.

The difference is the attitude of the statesman school of thought toward defense spending: national security is the fundamental, top priority of government. Waste is abhorrent and should be eradicated — but the resulting savings should be redirected toward productive use for enhancing national security. The statesman school places a high priority on national security in a changing world. President Washington articulated its high priority; Eisenhower and Reagan followed through on it.

The statesman school agrees with the moderate school: it’s not about the money, it’s about what we get for the money. But the statesman school elevates the priority of national security: instead of cutting waste to deliver the same level of security (or insecurity) for less money, the proper objective of waste-cutting is to deliver more security for the same amount of money.

In short, spending more money on everything but defense is the top priority of the Far Left, while spending less money on everything including defense is the top priority of the Far Right. These two extremes are drowning out the moderate and the statesman schools of thought — but an honest debate should include all four schools.

Steve Conover retired recently from a 35-year career in corporate America. He has a BS in engineering, an MBA in finance, and a PhD in political economy.

FURTHER READING: Conover also writes “‘Investment’ Means Defense Spending,” “A Business Perspective on the Federal Debt,” and “A Winning Strategy on the Debt Ceiling (Courtesy of Warren Buffett).” Michael Barone says “Spending Cuts May Be Answer to Slow Economic Growth.” Dan Blumenthal and Michael Mazza explain how “National Security Trumps Smokey the Bear.” Phillip Swagel argues “There are Plenty of Places Obama Could Find Common Ground with the GOP.”

Image by Dianna Ingram / Bergman Group

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