Fiscal Do’s and Don’ts

National Review Online

Monday, February 12, 2018

Congress has reached a consensus on spending — spend! — and the Trump administration is broadly inclined to agree: On the heels of a $1.5 trillion tax cut, congressional Republicans joined up with Democrats to drop the Boehner-era statutory spending constraints and jack up spending by some $300 billion over the next ten years. The Trump administration now proposes $200 billion in federal spending as part of what the president hopes will be a $1.5 trillion package.

The president has suggested that this $200 billion in spending will be offset by spending cuts elsewhere in the government, currently unspecified. Trump has suggested that foreign-aid cuts will be part of the picture, and like-minded critics of foreign aid such as Senator Rand Paul have echoed the sentiment, but those outlays are nowhere near sufficient to offset that $200 billion. If U.S. foreign assistance were halved — which is unlikely and not obviously desirable — that would cover about 10 percent of the proposed infrastructure spending.

Perhaps Trump is a shrewder budgeter than he is being given credit for, in which case we have an alternative proposal: Identify those $200 billion in spending cuts, cut that spending, and then do . . . nothing. Pocket the savings.

They are going to be necessary.

While some of our friends in Washington worry about rinky-dink outlays such as foreign aid, the biggest chunks of federal spending remain on autopilot. Not that Congress shouldn’t mind the pennies: If there is spending that is undesirable or ineffective in foreign aid, or in any other category, it should be addressed. But most federal spending is concentrated in a small number of categories: national defense, which Republicans propose to spend more on, and not without good reason; interest on the debt, a non-optional outlay; and entitlements. About entitlements, there is some disagreement: More traditional fiscal conservatives such as Paul Ryan still desire to enact entitlement reform, but Trump has proposed himself unalterably opposed to entitlement cuts since the earliest days of his campaign, one of the positions in which he finds himself in accord with “Chuck and Nancy.”

The case for entitlement reform is straightforward: The current levels of spending are unsustainable and eventually will exert critical pressure on our national fiscal position. In order to avoid wrenching and sudden changes in the future — e.g., cutting Social Security benefits by 25 percent in a single year, or doubling federal taxes — we should enact milder and less radical reforms in the present, before the fiscal situation becomes truly dire. Entitlement reform is like saving for retirement: The earlier you start, the more the benefits compound, and the better off you are when the hour of need is upon you.

But that is a difficult and potentially unpopular course of action. A much easier one would be to engage in a $200 billion federal giveaway in the name of “infrastructure,” the case for which is almost entirely political. Infrastructure is generally sold two ways: The first is as a needful investment in roads and bridges that routinely are described as “crumbling,” even though the share of such infrastructure that actually is in a serous state of disrepair is very low. There are in fact about 20 bridges carrying significant traffic and judged “structurally deficient,” according to a Reuters analysis of federal data, and none of them is at risk of imminent collapse, despite panicked rhetoric to the contrary. That isn’t the sort of thing that calls for a few hundred billion dedicated to a national infrastructure project — that calls for a case-by-case, targeted approach. The second argument for giant infrastructure bills is that they constitute an economic stimulus; it is not at all clear that they actually do so (the stimulative effects of the Obama program were too faint to detect in the economic data), and it is entirely clear that no stimulus currently is needed: Employment and wage growth have been better in the past couple of quarters than they have in years, and overall economic growth is on an encouraging trajectory.

The proposal does include some reforms of the permitting process that are worthwhile — reforms that would be no less worthwhile without $200 billion of needless spending.

Our infrastructure isn’t crumbling, but our national fiscal position could use some shoring up. The economy is not currently in need of stimulus, but the Republicans’ instinct for fiscal conservatism is.