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Fiscal Policy

7 min read

Part of Taxes, spending and debt.

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Every episode (3)

Who argued it

William Ruger · Jason Sorens · Ivan Eland · Peter Suderman

National Debt · Federalism · Trump Administration · Medicare

Background

Government and jobs

In an episode on the economy, deficits and the debt ceiling, Bob Zadek described unemployment as remaining above 9% and asked about the relationship between fiscal policy and jobs. He put the problem as whether government can create jobs at all: he observed that government could cut the minimum wage in half and thereby employ twice as many people, or hire 10,000 men to dig a hole and another 10,000 to fill it in, but called such results wasteful, and said government instead creates an environment in which businesses can create jobs The Second American Revolution – NOW (2011).

Don Boudreaux, introduced by Zadek as a professor of economics at George Mason University, called it a myth that government spending and monetary policy create jobs. In his account entrepreneurs create jobs, and they create jobs the freer they are; a worker may have many job offers, but if the economy has nothing on the shelves of supermarkets and department stores, the worker remains poor. Boudreaux said government could “create jobs” by reducing regulation, but that this is like saying government has stopped destroying jobs The Second American Revolution – NOW (2011).

Debt ceiling and fiscal credibility

Boudreaux argued that government is discussed with a backward worldview under which an institution in huge debt must be allowed to borrow more and to break its promise to keep its debt under a certain limit. He said that if government failed to raise the debt ceiling and prioritized its payments, paying off all its creditors, the credit markets would welcome it, since Uncle Sam would look serious about keeping his fiscal house in order. Zadek compared the situation to a business person who tells a banker that cash flow problems are under control, that back-office and marketing expenses are being cut and unprofitable divisions closed, rather than one who asks for more money without cutting back; Boudreaux agreed, and said sticking to the commitment is what would send the signal to credit markets The Second American Revolution – NOW (2011).

Zadek added, as the segment went to break, that if the debt ceiling is not raised there will not be a default, but a strategic, politically motivated non-payment, and that politics cannot overrule sound fiscal policy The Second American Revolution – NOW (2011).

The downgrade and entitlement spending

A later episode turned to the Standard & Poor’s downgrade of the United States’ credit rating. Zadek said the topic was the downgrade and whether Standard & Poor’s was correct and had the right to do what it did, a question he said was being asked by the Senate Banking Committee. He introduced Peter Suderman as an associate editor of Reason magazine who writes regularly on healthcare, tech policy and pop culture. The episode’s own summary states that the two discussed the short-term political gridlock and the long-term fiscal challenges posed by entitlement spending, explored historical precedents such as Canada’s recovery from a downgrade, and debated solving the debt crisis through tax hikes on the wealthy versus structural spending cuts Is the US the Next Enron? (2011).

Fiscal policy as a measure of freedom

In an episode on state rankings, Zadek introduced fiscal policy as the first subdivision of the book under discussion and asked why a reader should care about a state’s fiscal policy and its effect on freedom. William Ruger answered that fiscal policy is fairly intuitive in its relation to freedom: when the state uses coercive power to levy taxation and debt onto citizens and their children and grandchildren at a level above what is necessary to protect basic liberties, it substitutes its views about what a person’s hard-earned money should go for. Ruger said fiscal policy is about 30% of the index, measured through taxation at the state and local level, government consumption, government employment and debt, and named Hawaii and New York among places with excessive taxation Ranking Freedom in the 50 States (2022).

Zadek pressed the point that taxation is itself a direct denial of freedom, because a dollar that begins as yours and over which you have total dominion is spent by government once taxed; the taxpayer has no choice except indirectly through the ballot box. Ruger described himself as a classical liberal and as a statist libertarian, adding that a limited government that protects lives and property needs to be supported, but that government at both the federal and state level is well beyond that, and that government does not create wealth, individuals do in relationship with other individuals. He invoked Robert Nozick’s Anarchy, State, and Utopia and Nozick’s treatment of what is called distributive justice, which he said assumes a pie to be distributed rather than one created by people, the just distribution being the result of consenting adults engaging in consensual acts of capitalism Ranking Freedom in the 50 States (2022).

Asked by Zadek about the politics of states that do poorly on fiscal policy, with New York at the bottom and California also low, Jason Sorens said some voters are willing to pay higher taxes for more public services and vote for politicians who want that, and that states voting for the Democratic Party in state elections tend to have less economic freedom. He cited West Virginia’s shift from strongly Democratic to strongly Republican and said its economic freedom score rose, something the authors had predicted. Sorens also described a residual of cronyism or corruption: states where tax dollars are systematically more likely to be wasted or given to private companies in subsidies, which also tend to have more economic regulation of starting a business or entering a profession, higher lobbyist-to-legislator ratios, and more corruption convictions Ranking Freedom in the 50 States (2022).

On methodology, Ruger said fiscal policy variables are weighted the same way as regulatory policy and personal freedom, by the value of freedom affected for those whose freedoms are at stake, using a dollar estimate of the benefits of a shift in a pro-freedom direction, with a boost for things related to basic constitutional rights. He said fiscal policy is about 30% of the index, with personal freedom about 33% and regulatory policy about 35%, covering variables from government employment to raw milk sales, gun laws, cigarette bans and occupational licensing Ranking Freedom in the 50 States (2022).

Across episodes

The debt ceiling argument of 2011 appears in two episodes: Zadek and Boudreaux treated a failure to raise the ceiling as a non-default and a credibility signal, while the downgrade episode turned to entitlement spending, tax hikes on the wealthy and structural cuts. The 2022 episodes recast fiscal policy as a measurable component of a state freedom index, with Ruger and Sorens naming New York as the worst state and New Hampshire as the top state The Second American Revolution – NOW (2011) Is the US the Next Enron? (2011) Ranking Freedom in the 50 States (2022).

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