The goal of the current debate over the so-called “fiscal cliff” has been mischaracterized by the Democrats as one of how best to shrink the federal budget DEFICIT. Republicans should take the offensive and re-characterize the debate as one over the size of the federal budget itself. The real problem is that the federal government spends too much, not that its receipts fall shockingly short of its expenditures. The deficit debate is used by the Democrats to justify higher taxes, whereas the size of the budget itself should be the issue.
Excessive and unconstitutional spending is the cause of our economic problems and not the solution via so-called “stimulus” spending which produces a phony “multiplier effect”. Not only is there no stimulus and no multiplier effect to government spending, the opposite is the case. Government spending is not a free good, but comes at the expense of the private economy, which is the real economy. The more government spends, the poorer we become.
If government expenditures really did stimulate the economy and produce a multiplier effect, then there would be no need for taxation. As Edmund Contoski states in his new book The Impending Monetary Revolution, The Dollar and Gold, “If the multiplier really were larger than 1.0, the GDP would rise even more than the rise in government spending!” But as Mr. Contoski shows through both sound theory and by referencing many well regarded empirical studies, government spending actually causes the economy to shrink. This stands to reason due to the coercive nature of government spending. Whereas private spending is always a win-win transaction – meaning that both parties fully expect to improve their economic situation, otherwise there would be no transaction–government spending is win-lose, meaning that government coercively takes from some and gives to others. Of course, the recipients are better off, but only at the expense of others. And since neither party engages in the transaction freely, the net benefit cannot be anything other than negative. Rather than individuals carefully choosing what transactions to enter, government presumes to do it for them. There is no way that even the beneficiaries of the spending are fully satisfied and, of course, those who pay gain absolutely nothing.
So, the Republicans should stand firm that spending must be cut…and not just the rate of spending increases, but an actual cut in 2013. The Republicans control the House of Representatives, where all spending bills must originate. Therefore, although the Republicans may not have the votes to extend expiring tax cuts, they can stop all spending. This is a powerful weapon, and it should be used. It is high time for the Republican Party to take a principled stand against the socialist policies that are destroying our nation. Congressmen must take seriously their oath to defend the Constitution. Nowhere in its enumerated powers, as specified in article one, section eight, does our Constitution give any authorization for the vast majority of our government’s expenditures. Congressional Republicans should stand firmly on the bedrock of the Constitution, knowing that it is both their legal and economically principled thing to do, and our nation will be saved.
Patrick Barron taught Austrian Economics at the University of Iowa and Bank Management Simulation at the Graduate School of Banking, University of Wisconsin. As president of the Right Approach Group, which offers free market solutions to current economic problems, he has spoken at economic conferences at the EU Parliament offices in Brussels, Belgium and Strasbourg, France. He writes a blog which can be found here.