Tyler Lees is a conservative engineer and train nerd from Midvale, Utah.You can follow him on Twitter as @ThePacificSlope. After he and I discussed on Twitter the necessity of establishing priorities for government in order to cut spending, I invited Tyler to share his view on the topic in a format longer than Twitter’s 140 characters. The following are his thoughts.
I believe that there is a practical limit to how big government can get, irrespective of ideological points of view. Let me explain.
There is a real limit on how much a government can permanently spend. Taxes can only be raised so much and only so much debt can be incurred before the amount of revenue a government can raise tapers off. Where those points are can often be determined only after they have been reached. Just because we want something more, does not mean we can have it.
Taxes can only be raised to a certain point before the increases cease to yield significant gains in revenue. (This is the much-debated, much maligned, but holding firm concept known as the Laffer curve.) The reason for this is that taxes pull money out of private hands and place that money in the public till. The money will not go to expansion of business, repayment of debt, investment in new equipment or research and development,or, on the personal level, to where you—the individual taxpayer–want to spend it. The more taxes rise, the less cash businesses and individuals have to spend on their priorities, and with the effect that economic growth is reduced.
Debt is the second way governments can raise cash for their needs, but the amount of debt a government can accrue is also limited – in much the same you and I are. You can only borrow as much money as someone is willing to lend you. And that debt has to be paid back, eventually. The financial problems we are seeing in Europe is due to the loss of creditors confidence (and in the case of Greece, confirmation) that the Euro zone nations can honor their debts.
How about an example to demonstrate – what if a nation finds itself in an emergency (such as a war or natural disaster), and has to spend more than it can bring in? Looking at the United States in World War Two, the national debt rose to the equivalent of over 110% of GDP by 1945 as the nation mobilized for war and put ten percent of the population in uniform. This,despite rates of taxation that might have seen communists up in arms. However, there was little, if any, protest because, and this is the key,the emergency ended, along with the high levels of borrowing. The need for budget-busting expenditures ended with the war, and taxes remained at high levels only long enough to pay down the national debt. A gross oversimplification, perhaps, but not inaccurate
In 2011, the United States national debt again exceeded 100% of GDP. The difference is that only a small portion of the debt over-run can be classed as temporary – most are a permanent part of the budget, items that will not end with an emergency or a cease-fire.
When our future obligations to Medicare, Social Security, and national health insurance (aka “Obamacare”) are factored in, expenditures will continue to grow. As the baby boomers retire those expenses will grow faster than our ability to tax and borrow.
The budget will have to be cut, and we will have to make major changes to Social Security, Medicare, and the national health insurance plan to stay viable. This will happen – we can either do so voluntarily, now, or have it forced upon us when no one will let us borrow any more. “Austerity” will seem kind compared to the choices that will be forced upon us when the money runs out.
Our beliefs and principles can only guide what our priorities should be going forward.