Constitution Society

A weekly column by Ron Paul

Last week, the House approved another increase in the national debt ceiling. This means the government can borrow $1.9 trillion more to stay afloat and avoid default. It has been little more than a year since the last debt limit increase, and graphs showing the debt limit over time show a steep, almost vertical trend. It is not likely to be very long before this new ceiling is met and the government is back on the brink between default and borrowing us further into oblivion. Congressional leaders and the administration acknowledge that the debt limit will need to be increased again next year. They are crossing their fingers that the forecasts are correct and they will not need another increase sooner, even before the 2010 midterm elections.

Continually increasing the debt is one of the logical outcomes of Keynesianism, since more government spending is always their answer. It is claimed that government must not stop spending when the economy is so fragile. Government must act. Yet, when times are good, government also increases in size and scope, because we can afford it, it is claimed. There is never a good time to rein in government spending according to Keynesian economists and the proponents of big government.

Free market Austrian economists on the other hand know that times are bad because of the size and scope of government. The economy is fragile because of the overwhelming stranglehold of bureaucracy and taxation of Washington. Any jobs Washington might create through these endless spending programs are paid for through more taxation and debt put on the productive sectors of the economy. Just as insidious is the hidden tax of inflation caused by the Fed and its ever-expanding credit bubble. When the Fed steps in with its solutions, it only devalues the dollars in everyone’s pocket while encouraging more reckless waste on Wall Street. All of this leads to a worsening economy, not an improved one.

And so the downward spiral continues. The worse things get, the more politicians want to spend. The more they spend, the heavier the debt load becomes and the more we have to spend just to maintain our interest payments. As our debt load becomes unsustainable, the alarm of our creditors increases. It is becoming so serious that our credit rating, as a nation, could be downgraded. If this happens, interest on the national debt will increase even more, leading to even higher taxes on Americans and inevitably, price inflation.

Still, Washington is full of talk of more regulation, more taxation and more spending. The Senate is still struggling to pass a massive regulatory increase on the financial sector, even as the stock market suffers more shockwaves. Pay-as-you-go rules give the appearance of fiscal responsibility, but in truth these rules are only used as a justification to raise taxes. Spending programs like healthcare reform, increased military spending, and a recent doubling of destructive foreign aid are viewed by Washington as necessary and reasonable, instead of foolishness we absolutely cannot afford.

The people understand this, which is why there is so much anger directed at politicians. Washington needs to change its thinking and adopt some common sense priorities. The Constitution gives some excellent limitations that would get us back on the right path if we would simply abide by them. The framers of the Constitution understood that only the ingenuity of the American people, free from government interference, could get us through hard times, yet Washington seems bent only on prolonging the agony.

Last week politicians in Washington made a few things clear about how they really feel about the state of the union. First, they are beginning to hear the growing discontent with the size and scope of government and the broken promises that keep piling up. Certain events in Massachusetts recently made that statement loud, clear and unavoidable. In the face of those events, the powers that be made the determination that some populist rhetoric was in order, and the idea of a spending freeze in Washington was proposed, albeit with several caveats. These caveats to the proposed spending freeze ensure that we are not at any real risk of actually doing anything about spending.

First of all is timing. It wouldn’t go into effect until 2011, which allows plenty of time to increase spending levels quite a bit before they are frozen. If the administration really understood and cared about our spending problems they would not freeze spending a year from now, but cut spending immediately and significantly. But, spending cuts almost never happen in Washington, and they are not likely now or a year from now – if the politicians have anything to say about it.

The second caveat is the huge areas of the budget that are shielded from this freeze. The entire State Department budget is exempt, as are all entitlements, all military industrial spending and almost all foreign aid. Fully 7/8 of federal spending is excluded from this freeze, and some areas to be frozen were actually set to decrease, which means a freeze actually guarantees a higher level of spending.

Especially insulting is the idea that in spite of our own fiscal problems at home, taxpayer dollars will continue to be sent overseas in the form of foreign aid where it often does more harm than good. When need is demonstrated to Americans and they can afford it, they can be counted on for a tremendous outpouring of private, voluntary charity to worthy aid organizations, as we recently saw in Haiti. By contrast, government-to-government aid is taken from the poor by force and too often enriches the corrupt. It is counterproductive and wasteful. But the idea of eliminating, freezing, or reducing foreign aid is not up for serious debate any time soon.

The third caveat is what is included in the freeze that would make it politically impossible to pass Congress, for example air traffic controllers salaries, education, farm subsidies and national parks.

I do not necessarily want a cut in spending in this country - I just want to change who does the spending. The spending should be done by the people who earn the money, if they choose, and on what they choose, without any government interference. That is what makes the economy work. Politicians should stick to the very limited roles given them by the constitution instead of allocating such a sizeable portion of our capital and intervening through regulations and tax policy. But because politicians have disregarded the constitution, and the people have no idea what rule they will break next, there is already a very real spending freeze underway in this economy, by the people. If government would stick only to what it was authorized to do, and leave the rest to the people, most of these problems would resolve themselves.

Much has been made recently about the supposed economic recovery. A few blips in a few statistics and many believe our troubles are all over. Of course, they have to redefine recovery as “jobless” to account for the lack of improvement on Main Street. But the banks have money, Wall Street is chugging along, and the administration would like to get on with other agendae.

They have even set up a commission to investigate the crisis as if it were all in the past.

The truth is that Americans are still losing jobs, the Fed is still inflating, and more regulations are in the works that will prevent jobs and productivity from coming back. We are on this trajectory for the long haul. The claim has been made many times that this administration has only had a year to clean up the mess of the last administration. I wish they would at least get started! Instead of reversing course, they are maintaining Bush’s policies full speed ahead. They are even keeping the Bush-appointee in charge of the Federal Reserve! They are not even making token efforts at change in economic policy. And for all the talk of transparency, we hear that some powerful senators will do all they can to block a simple audit of the powerful and secretive Federal Reserve.

Last week, the Financial Crisis Inquiry Commission kicked off their first round of hearings on the causes of the economic meltdown on Wall Street. The commission is being compared to the the Pecora Commission launched in 1932 to investigate the causes of the Great Depression. The Pecora commission is beloved by those who believe the solution to every problem is more laws because it was used to justify a number of new laws, including Glass-Steagall. Of course, none of those laws addressed the real causes of the Great Depression. It was the introduction of unsound monetary policy and central economic planning pursued by the Federal Reserve that really threw everything off balance. The Fed was founded in 1913 to stabilize the economy and prevent a recurrence of the short-lived Panic of 1907, but instead it promptly produced the Great Depression which lasted more than 15 years.

A weekly column by Ron Paul

This past week we celebrated the end of what most people agree was a decade best forgotten. New York Times columnist and leading Keynesian economist Paul Krugman called it the Big Zero in a recent column. He wrote that “there was a whole lot of nothing going on in measures of economic progress or success” which is true. However, Krugman continues to misleadingly blame the free market and supposed lack of regulation for the economic chaos.