ECONOMIC ANALYSIS: Lack of fiscal discipline casts cloud over future

Keywords Economy / Government

There’s been a resurgence of interest in the founding fathers of our country, judging from the best-seller lists.

As some have written, not all those men we idolize today as founders of our great democracy were equally excited about the prospect of turning government over to the masses. In fact, some were downright terrified. They feared popularly elected governments would quickly go bankrupt spending their way to popularity.

Now more than 200 years into the great democratic experiment, we’re hardly bankrupt-we’re the largest economy in the world. Yet the fears of careless spending haven’t exactly been disproven. In fact, with the specter of new obligations to rebuild from hurricanes staring us in the face, you could say those fears have come home to roost.

Whatever your feelings are for the Bush administration in Washington, it is hard to conclude it has been anything but a miserable failure with respect to fiscal discipline. The swing in the surplus of the federal government from black to red ink has been dramatic any way you measure it.

As recently as 3-1/2 years ago, a 12-month average of monthly deficits showed the federal government still $20 billion in surplus. Three years later, that same calculation produced a $425 billion deficit.

And even though recent months have seen the deficit shrink from that peak, all the healing in the bottom line came from growth in the economy, not from the actions of Congress and the White House.

Like any good economist, I know I should not be considering the deficit by itself. I should compare it to the overall economy. And it is true that the current deficit, which is running slightly above 3 percent of gross domestic product, is smaller than many other industrialized nations’ and substantially smaller than it has been at many times in our own recent history.

But if the knowledge that the national credit card is not yet maxed out reassures you, it does not do the same for me. The mere fact that the federal government can run deficits of this size does not make it sensible or desirable to do so.

Not only does the deficit financing of the everyday business of government unfairly push the burden of paying for what we enjoy today to future generations, it also reduces the wiggle room in budgets when unpredictable events occur.

To be fair, not every dollar of the deficit can be laid at the feet of the current administration’s profligate ways. The recession of 2001 and increased spending on the military and homeland security would have brought on increased deficits in almost any realistic scenario. And, of course, it is Congress that ultimately produces the sausage in every spending bill.

But the ordinary obligations of the federal government have mushroomed from the day the White House changed hands. The energy bill, the highway bills and the farming legislation all have run up the spending tab higher than the White House would have liked, but it did nothing to stop it.

And opening the public purse to initiate a new entitlement program to fund prescription drug purchases for affluent senior citizens was the brainchild of 1600 Pennsylvania Ave., pure and simple.

Ironically, debt financing of spending to help rebuild Gulf Coast infrastructure shattered by hurricanes is justifiable, given that some of those investments can generate benefits for future generations as well. The same cannot be said for the avalanche of new obligations approved by our Washington leaders in the last five years.

Barkey is an economist and director of economic and policy study at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at

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