By Jerry Bowyer
George W. Bush is not a Goldwater Republican — he’s a Lincoln Republican. Like the founder of the Republican party, Bush doesn’t mind spending money on his priorities, and he doesn’t mind doing some of this spending with borrowed money. Like Lincoln, he doesn’t mind federal expenditures for what Lincoln called “internal improvements,” such as canals and railroads or, today, new roads and levies in the Gulf. Lincoln, too, was a big borrower, which seems to have worked out okay for the sixteenth president.
The federal government can use a combination of different approaches to rebuild the Gulf Coast. Some can emphasize top-down public works while others can stress growth incentives. The preference of BuzzCharts is for the majority of federal relief funding to come in the form of tax-free, or tax-reduced, enterprise zones, rather than direct expenditures. This is a philosophical difference and not a question of economic data. The Bush plan is a little bit of both, and it’s also philosophically sound. While the president seems to favor some sort of enterprise zones for the damaged areas in the Gulf, he also seems comfortable with deficit spending.
Some people complain that Katrina rebuilding should not be financed through deficits, but why not? Infrastructure creation is exactly the sort of thing that should be shouldered by government. Current expenses typically come through operating budgets. Expenditures that provide benefits for new generations of Americans go through the capital budget, meaning future generations participate in the cost of the projects that will benefit those future generations. This makes sense. It’s why most corporations have separate capital budgets and operating budgets. It’s why America was right to finance the Civil War, WWI, WWII, and the Cold War through deficits.
My generation benefited from the obliteration of the Nazis, so I don’t mind paying some of the debt service on that end. My children benefited from the fall of the Soviet Union, and therefore it’s fair for them to carry some of that burden. My grandchildren will benefit from the destruction of the jihadists and the rebuilding of the Gulf region, so it’s fair they bear some of these costs.
Deficit spending is problematic when it’s used for operation expenses, so it’s fair that Katrina relief be funded through offsets from the normal operating budget. If we reduce spending elsewhere in order to fund Katrina rebuilding, then we’re borrowing money to build long-term capital assets. This is the world exactly as it should be. If we keep the president’s tax cuts in place, GDP and revenue growth will easily absorb the cost of the rebuilding campaign. The above chart clearly makes the case that we should keep and extend the revenue-generating tax cuts on dividends and capital gains that went into effect in 2003.
The Bush plan will make private ownership (another Lincoln legacy) a central reconstruction tool. It will then look to borrow whatever is necessary to win the war and rebuild the South. Lincoln would understand.
– Jerry Bowyer is the author of The Bush Boom and an economic advisor to Independence Portfolio Partners. He can be reached through www.BowyerMedia.com.