Once again the federal government is facing a crisis because it has reached its "debt ceiling". This is an artificial limit, set by Congress, because while pretty much everybody agrees that ever-increasing debt is a bad thing, almost nobody in Congress is willing to do what would be necessary to actually stop it – cut spending.
So instead they pick a new number that allows them to increase spending for a few more years, and congratulate themselves on having saved the economy from ruin. Then just a few years later they find themselves facing this "ceiling" again, and go through the same farce of pretending to do something about it.
As a result of this failure to address the underlying problem – that the federal government is spending more each year than it can raise in taxes – the debt of the federal government has grown (with historical figures "inflation adjusted" to be comparable to the current figure) from about $3 trillion in 1950 to about $10 trillion in 2000 to more than $30 trillion today. This is money that the politicians have promised will be paid back, but nobody really believes it ever will. And the larger this debt, the larger the amount the federal government must spend each year just to pay the interest on the debt. That of course also depends on the prevailing interest rate, so with interest rates rising from practically zero a few years ago to what they are today, failure to curb the debt this time is all the more ominous.
The only way to actually stop the debt from continuing to grow is to eliminate the deficit – the difference between what the government collects in taxes and what it spends. And there are basically just two ways to do that: tax more, or spend less. But it isn't in the interest of politicians to do either. The incentives are all wrong. Either raising taxes or cutting spending (ending programs, laying off employees, or cutting "benefits") will cost them votes. So while there are many pretty obvious ways to cut spending, they rarely get enough support in Congress to actually happen.
But here's an approach that might make a difference: Immediately end all programs under which the federal government sends money to state or local governments. There are dozens of such programs, in areas from transportation to education to health care. These are areas where most Libertarians would say the federal government shouldn't be involved at all – and many Libertarians would also say the state governments shouldn't be involved either! But leaving that aside, let's just consider the implications for the deficit, if this approach were followed.
Cutting all such transfers would immediately reduce the federal deficit without necessarily cutting any actual "services" or "benefits", because the states could make up the difference by spending more themselves. Of course if they did that by raising taxes, the state politicians would risk being thrown out of office – so they might be tempted to just increase their own deficits, and nothing would have changed overall.
But the politics of deficit spending at the state level are significantly different from the federal level. For one thing, a number of states have constitutional limits on deficit spending. Those could be overridden, but not without a big fight, probably involving a popular vote. For another, the state-level politicians can't rely on the Fed to bail them out, the way Congress can, by creating more money out of thin air.
But most important, it would change the incentives for the politicians in each area where these funds are actually being spent. Right now, being able to pay for things with "federal money" allows these politicians to sidestep the question of where the money is actually coming from. And since they don't have to raise the money themselves, they have little incentive to use it in the most efficient way possible, or to limit spending to the highest-priority uses. In some cases this means they actually spend money on things they never would have considered doing otherwise, for fear of losing "their share" of the federal largess!
With the same programs being funded by taxes for which they themselves are responsible, every state legislature, city council, and school board would find themselves in a very different position. They would need to justify every tax increase on the basis of the priorities of their own constituents. And the scramble among state and local governments for "free money" would be replaced by competition about who can most effectively keep spending in check, so they don't loose the support of their own voters.
In short, while this wouldn't automatically end deficit spending, it would move the decision about how much to spend in each state and locality down to politicians more answerable to local voters. In other words, it would decentralize a process that is now fueling expansion of the deficit, which is in turn what is responsible for the explosion of total debt – the problem to which the "debt ceiling" has been proven over and over again to not be an effective solution.
Joe Dehn is a Libertarian Party activist who lives in Sunnyvale. He has run for Congress several times, and is currently serving as chair of the county LP organization.
Commentary posts are the opinions of individual authors, and do not necessarily represent a formal position of the Libertarian Party of Santa Clara County unless so noted.