Reps. Jeb Hensarling and Mike Pence recently called for a constitutional amendment limiting federal spending “to one-fifth of the economy.” Bruce Bartlett, a former official in the George H.W. Bush administration, promptly denounced the idea as “dopey,” one “terrible… on so many levels that it is hard to know where to begin to dissect it….”
Now, the Constitution is intended to constrain majorities generally, and the federal government in particular. Why? Because politicians have shorter time horizons than taxpayers, and therefore incentives to spend and tax at levels higher than those preferred by those they purportedly represent. That problem is compounded by that political clout of concentrated interests.
Given the government’s strong incentives to spend too much and weak incentives to use resources productively, and given the vital role of the Constitution as a check on federal power, the proposed Constitutional limit on spending is scarcely something to dismiss as “dopey.” Moreover, unlike several alternative “spending limit” proposals (such as linking spending to inflation and population growth), a spending constraint linked to the size of the economy would have the supreme virtue of forcing Congress to consider the impacts of legislation on economic growth.
Here are Bartlett’s 10 arguments, followed by our comments:
1. “The Constitution has never in our history been used to enshrine a particular economic policy.”
Really? What about the 16th Amendment, enshrining an income tax? In fact, many of the Constitution’s constraints on federal powers deal with economic policy. Article 1, Section 8, for example, grants Congress the power “To lay and collect Taxes . . . to borrow money . . . to regulate Commerce with foreign nations, and among the several States . . . To establish . . . uniform Laws on the subject of Bankruptcies . . . To coin Money [and] regulate the Value thereof.”
Since federal spending (and other activities) metastasized far beyond the Constitution’s enumerated powers, a new spending limit is a way to move back toward the founders’ vision of the federal sphere. By alluding to historical precedent (“never in history”), Bartlett implies that amendments should be limited to topics already addressed in the Constitution. By that logic, however, amendments should not have been used to prohibit slavery, or to extend the suffrage to women and blacks. His assertion that it would be “unwise . . . to enshrine a particular economic policy” in the Constitution is hardly self-evident. It depends on what the policy is and its effect on current and prospective federal actions.
2. “It will take years and extraordinary effort to get two-thirds of both the House and Senate to enact such an amendment.”
So what? In the very next sentence, Bartlett scorns “every crappy delaying tactic that Senate Republicans have used against health care reform.” Indeed, it has taken decades for Congress to pass a version of health-care “reform” centralized in the Beltway. To be consistent, Bartlett would have to argue that the whole effort should never have begun, because it took too many years and too much extraordinary effort. Instead, he argues, explicitly, that the (wholly appropriate) difficulty of amending the Constitution is an argument against an attempt to do so − a non sequitur if ever there was one. To argue against doing something simply because it requires time and hard work is no argument at all. After all, it took four years of civil war with more than 600,000 killed to make the Constitution safe for the 13th amendment.
3. “When the congressmen say ‘the economy’ one assumes that they are talking about the gross domestic product, a term with no legal definition.”
Again: so what? Any such amendment can define “the economy” as, say, GDP two years earlier as reported by the Bureau of Economic Analysis. Bartlett’s point is that there are alternative definitions of “the economy,” with substantial differences among them. True, but trivial.
4. “There is another problem, which is that [GDP] is frequently revised; in fact, it is continuously being revised.”
Yes, but the base upon which allowable spending is to be calculated can be made with a lag sufficient to minimize this problem. Two years ought to be plenty. Another trivial technocratic complaint.
5. “An even bigger problem is that both the administration and Congress must necessarily develop the budget based on forecasts of GDP, which can sometimes be tragically wrong.”
Nope. The spending limit does not have to be defined in terms of a forecast. Next year’s spending could be defined as a percentage of GDP in the prior year or two, or even an average of two or three years. Even if the spending limit is defined in terms of estimated rather than actual GDP, forecasting errors are generally random, so any errors in allowable spending should even out over time. The credibility of Bartlett’s effort to disparage spending limits based upon relatively minor GDP revisions or forecasting errors is undermined by his apparent support of the health care “reform” monstrosity—which was supported with politically-rigged CBO estimates that were virtually fraudulent.
6. “It would be one thing to impose a Constitutional limit on spending if Congress had to vote on all of it every year. . . In fact, discretionary spending, which includes national defense, constituted only 35 percent of federal outlays last year, down from 61 percent in 1970. Since two thirds of the budget now goes either to interest on the debt or entitlement programs how can this be controlled on a yearly basis? If too many people turn 66 and claim Social Security benefits, is Congress going to say they can’t have them if it would push spending above 20 percent of GDP? Of course not; the idea is ridiculous.”
What is really ridiculous is Bartlett’s idea that Congress can only be held responsible for “discretionary” spending, not transfer payments or debts. All government spending is discretionary. Entitlements are “mandatory” only in the irrelevant sense that politicians lack the backbone to impose discipline upon them. Just as taxpayers have the right in their personal budgeting to limit their own spending on housing or car payments to some percentage of their incomes, they also have the same right to choose collectively how much to devote to federal spending. If “too many people turn 66,” taxpayers through the rules—the Constitution—that they impose upon themselves in the process known as self-government have every right to cut benefits and/or eligibility in order to stay within the self-imposed constraints of the budget. That politicians are frightened of the political consequences is entirely beside the point. Why is it “ridiculous” to envision Congress telling a special interest group that its slice of the pie this year will be trimmed a bit? And, since those various slices come from a pie that is determined by the size of the economy, interest groups will develop a new self-interest in Congressional actions making the economy bigger − hardly a “ridiculous” outcome. Those same interests seeking to protect their programs will apply pressure to constrain the growth of entitlements.
7. “Tax expenditures are a huge loophole through which spending can be driven.”
That is quite true, and not irrelevant. But surely Bartlett is not arguing that an imperfect constraint on federal spending is worse than no constraint at all. And because the Hensarling/Pence proposal limits spending to a proportion of GDP, that imposes an implicit constraint on the use of tax expenditures, regulations, and other gimmicks that would create distortions and disincentives that reduce the growth of GDP. Once elected officials can no longer let federal spending grow faster than the private economy that sustains it, they will have much stronger incentives than they do now to avoid policies that “kill the goose.”
8. “Loans and loan guarantees are another loophole. Or the government could mandate through regulatory or even tax policy that private businesses or state and local governments undertake certain activities that the federal government normally spends money on. (It’s worth noting that there is no limit on taxation in the proposal; only spending is constrained.)”
Our previous comments apply here too − regulations and mandates that slow the growth of the economy would also thwart politicians’ ability to spend. The implicit interest on loans and expected losses on loan guarantees can be defined as spending for purposes of the limit on outlays. Moreover, contrary to Bartlett, a spending limit would induce Congress to limit taxation as well: Why take the political heat for taxing when the political benefits of (additional) spending are unavailable?
9. “And of course there are the standard exceptions that Hensarling and Pence endorse for a declaration of war or a two-thirds vote by Congress to override the 20 percent limit.”
Since Congress has not declared war (formally) since 1941, the 20 percent rule would continue to apply. If Congress is too cowardly either to declare war under proper circumstances, or to deny the President the budget authority to wage war, then incumbent politicians should bear any political fallout from the need to cut other spending to finance military actions they lack the courage to either authorize or prevent.
10. “The whole question of enforceability is always glossed over by these Constitutional approaches to the budget.”
It is certainly true that the Constitution is not self-enforcing − a reality that has yielded a Leviathan far larger and more intrusive than envisioned by the Founders. That is why citizens, or at least individual members of Congress, would have to be given legal standing to sue to enforce the limit. Why would this be a problem?
Bartlett never actually argues that federal spending is not too high, or that a limit is a bad idea. All of his arguments are mechanical: It is difficult to define things, Congress will attempt to circumvent the limit, it takes too much time and effort to make big change, etc. None of this whining has much to do with the central issue of whether the Hensarling/Pence proposal would move the nation in the right direction. Bartlett concludes with an embarrassed lament “that I wasted so much time on [the Hensarling/Pence proposal] writing this post.” On the contrary, he should be embarrassed about wasting his readers’ time with such weak arguments.
Alan Reynolds is a senior fellow at the Cato Institute. Benjamin Zycher is a senior fellow at the Pacific Research Institute.