The Corner

Economy & Business

From Balanced Budgets to Borrowed Benefits

(Marcos Brindicci/Reuters)

Christopher DeMuth has written another extraordinary essay. This one appears in The American Interest under the headline Welfare and Debt: A Moynihan Assessment. His starting point is a speech on public finance delivered by Daniel Patrick Moynihan in the winter of 1986. Moynihan used the occasion to contrast federal budgets before and after the Reagan tax cuts. It was an unfavorable comparison. Reagan, he said, had purposely deprived the federal government of revenue in order to constrain spending. The upshot was an explosion in the national debt. The largest debtor nation with a declining defense program,” Moynihan said, is not likely to remain for long the symbol of successful government.

Moynihan wasn’t entirely right in his assessment. The tax cuts, DeMuth observes, were not intended to limit spending. They were meant to promote growth. Deficits ballooned in the mid-1980s mainly because Paul Volker’s Federal Reserve reduced inflation faster than anyone had anticipated. Reagan’s defense buildup was necessary to deter the Soviet Union. But Moynihan did have a big, singular insight. The political economy of the federal government underwent a dramatic change in the last quarter of the twentieth century that has persisted into the 21st. The government once provided public goods. Now it finances private consumption. Altogether, through good times and bad, deficit spending and payments for individuals have grown in tandem for nearly fifty years.

The balanced-budget norm has been replaced by the borrowed-benefits norm. A liberal such as Moynihan would have supported these benefits, of course. But, DeMuth adds, however worthy, necessary, or urgent they may be, they are mainly present consumption and are not going to generate returns to pay off the borrowed funds. Nor is our system of progressive taxation able to sustain them. To pay for the welfare state we have now — much less the one Bernie Sanders and Elizabeth Warren would like to build — requires a substantial middle-class tax increase. This is a fact that no politician in America is ready to face. Rather than debate how exactly to pay for the welfare state, progressives demand that millionaires and billionaires pay even more.

The pursuit of redistribution among the more-or-less well-off is a distraction from the noble aims of the welfare state as Pat conceived them — to alleviate real poverty and hardship, to strengthen the family, and to sustain community and nation, DeMuth concludes. His essay reminds us of the scale of our public-policy challenges; of the historical accidents (progressive taxation; employer-based health care) that brought us to this point; and of the wisdom of Moynihan and his circle, which included Nathan Glazer and Irving Kristol. None of these great intellects remain. Fortunately, we still have Christopher DeMuth.

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