About 10 years ago, the Center for Freedom and Prosperity released this video to explain that America’s real fiscal problem is too much spending and that red ink is best viewed as a symptom of that problem.
I wrote a primer on this issue two years ago, but I want to revisit the topic because I’m increasingly irked when I see people – over and over again – mistakenly assume that “deficit neutrality” or “budget neutrality” is the same thing as good fiscal policy.
- For instance, advocates of a carbon tax want to use the new revenues to finance bigger government. Their approach (at least in theory) would not increase the deficit. Regardless, that’s a plan to increase to overall burden of government, which is not sound fiscal policy.
- Just two days ago, I noted that Mayor Buttigieg wants the federal government to spend more money on health programs and is proposing an even-greater amount of new taxes. That’s a plan to increase the overall burden of government, which is not sound fiscal policy.
- Back in 2016, a columnist for the Washington Post argued Hillary Clinton was a fiscal conservative because her proposals for new taxes were larger than her proposals for new spending. That was a plan to increase the overall burden of government, which is not sound fiscal policy.
- And in 2011, Bruce Bartlett argued that Obama was a “moderate conservative” because his didn’t raises taxes and spending as much as some on the left wanted him to. Regardless, he still increased the overall burden of government, which is not sound fiscal policy.
To help make this point clear, I’ve created a simple 2×2 matrix and inserted some examples for purposes of illustration.
At the risk of stating the obvious, good fiscal policy is in the top-left quadrant and bad fiscal policy is in the bottom-two quadrants.
Because of “public choice,” there are no real-world examples in the top-right quadrant. Why would politicians collect extra taxes, after all, if they weren’t planning to use the money to buy votes?
P.S. In 2012, I created a table showing the differences on fiscal policy between supply-siders, Keynesians, the IMF, and libertarians.
P.P.S. I also recommend Milton Friedman’s 2×2 matrix on spending and incentives.
International Liberty 
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Reblogged this on Utopia, you are standing in it!.
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[…] the theory is nonetheless wrong because it elevates one variable – fiscal balance – while ignoring other variables that have a […]
[…] the theory is nonetheless wrong because it elevates one variable – fiscal balance – while ignoring other variables that have a […]
[…] the theory is nonetheless wrong because it elevates one variable – fiscal balance – while ignoring other variables that have a […]
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Smaller government is the only possible long-term solution.
Note, too, that smaller government means more freedom, more opportunity, more comity.
You could argue Clinton in the upper right corner, as he increased taxes and decreased spending. He did later cut the capital gains tax though.
Reagan cut taxes, and spending went down as a percentage of GDP. Reagan also had to accept higher spending than he wanted from Congress.
Dan,
You put Reagan in the wrong quadrant. Spending increased a lot during Reagan’s eight years, and taxes increased. Reagan belongs in the lower right hand quadrant.
I think you got it backwards, shouldn’y Bernie be on the left?
[…] Posted January 27, 2020January 27, 2020 AuntiE The Correct Fiscal Goal Is Smaller Government, not Budget Neutrality or Deficit Neutrality […]