Tuesday, November 10, 2009

It's a spending problem 

Analyzing the current fiscal trend and the Left's answer to it, Keith Hennessey concludes:
This is why I try to encourage elected officials to use the phrase �spending discipline� rather than �fiscal discipline.� Our long-term deficit problem is a spending problem.
Welcome to Minnesota, where Governor Pawlenty has announced he wants a constitutional amendment to cap spending. The amendment reads: "Shall the Minnesota Constitution be amended to require that state government general fund expenditures be limited to the amount of actual general fund revenues received by the state in the previous two-year budget period?"

The reaction is predictable. You get DFL opponents saying things like "you can't cut your way to greatness." You get the StarDFLTribune cynically claiming that constitutional amendments that commit to INCREASED spending (such as the Legacy Amendment) are a reason why you can't have spending cuts.

Hennessey argues that the following line of attack follows the Left's hold on government:
Around Minnesota, where deficits are not allowed, you increase spending faster than the increase in personal income during expansions, letting the procyclical nature of tax revenues fill the gap. When your economy goes into recession, you label as radical or extreme anyone seeking to cut the deficit by spending cuts -- you vilify the "no new taxes" crowd. (I'd put in links for that, but I'd insult some liberal advocacy group by forgetting to link their sackcloth-and-ashes act.) You end up with an 11th hour "woe is us, we must raise taxes" ploy, and stick it to the rich at midnight. Rinse and repeat begins February 4, 2010.

Spending limits have a long history, as this National Conference of State Legislatures summary shows. Pawlenty's proposal is different from most in our history, which either set a limit tied to population growth or growth+inflation. (Cato argues that limits set by personal income growth have been ineffective.) Those that set a maximum percentage of personal income (share of a level, not a growth rate) would find us probably near the limit now. Unlike the Pawlenty logic, I actually do plan on spending more when I'm older if I think my income will rise over time. I would argue this plan would have had a more tested version than this. (How do I know in May when the Legislature adjourns what revenues were for June, the end of the biennium, for instance?) It's worth noting that Milton Friedman more preferred the pop-growth-plus-inflation formula.

I worry that this amendment will barely register a nod from the Twin Cities political establishment. But clearly Pawlenty has seen the light that Hennessey is shining. At my home when the checkbook looks empty, I don't usually say I have an income problem (and I sure don't ask my neighbor to cover it for me.) I say I have a spending problem, and I fix it by spending less.

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