Balanced Budget Hagiography Plays Into the Hands of Big Government

Ed Crane, the late co-founder of the Cato Institute, was not a fan of “across the board spending cuts.” And that’s not because Crane favored big government.

Crane very much disdained the notion implied in “across the board” that unenumerated federal activity was ok so long as it didn’t cost a lot. Instead, the Constitution explicitly limits federal functions, while “across the board spending cuts” suggest a federal government with an expansive policy portfolio so long as the costs are somewhat contained.

All of which explains Crane’s much more pointed disdain for “balanced budget” theology of the kind that’s yet again gaining currency inside libertarian circles. Talk about evidence of giving in to Leviathan.

Ever so slightly paraphrasing what Crane would routinely ask proponents of what has nothing to do with limited, constitutional government, “Would you prefer a balanced federal budget of $6 trillion annually, or a $3 trillion annual budget with $500 billion of the total borrowed?” Sadly, all too many stuttered in response.

It seems those same stutterers are still confused to this day. Crane wasn’t.

From the question asked, Crane then pivoted to the crucial truth that government spending is the biggest tax of all, how it’s funded of greatly reduced importance. While so-called “deficit hawks” wrap themselves in false sanctimony about protecting the sainted grandchildren, Crane understood that the much bigger burden for the grandchildren was the size of government they would inherit. Beyond the costly burden of the latter, the grandchildren would also inherit a much less evolved society, one held back by the lack of progress implied in so much consumption of precious resources on constitutionally dubious programs.

All of which is worth remembering as libertarians and conservatives revive yet again the calls for a balanced budget amendment. They wrap their support in the false notion that a balanced budget will have a limiting effect on the federal government. See the opening line of this opinion piece about Crane if you’re skeptical. He would be too.

He would also gently remind the neo-libertarians of what’s true, that unconstitutional functions taken on by government don’t gain nobility if a balanced budget amendment purports to limit expenditure on those same functions. Furthermore, he might point out that a balanced budget amendment wouldn’t limit the federal government as is. Quite the opposite.

If you’re doubtful, just consider the national debt that’s presently at $39 trillion, but that George Will writes will soon reach $40 trillion. Notable about $40 trillion is that the yield on 10-year Treasury income streams is 4.67%. This is important because in 2007, when the national debt was $7 trillion, the yield was 4.63%. Translated, the markets that modern libertarians don’t pay enough attention to are signaling every bit as much confidence about future Treasury income streams with debt of $40 trillion as they did at $7 trillion.

Treasury income streams are the most owned in the world, and what this deepest of deep markets is telling us through $40 trillion of debt is that federal revenues in 2026 are small relative to what they’ll be. In other words, and assuming the “achievement” of a balanced budget amendment in the future, it will occur alongside a much bigger federal government.

About all this, modern libertarians are blithe. Focused on the $40 trillion as the “future crisis,” they ignore that the real crisis is that there isn’t one. Crane would understand, while those who stand on his shoulders do not.

Originally published on Real Clear Markets.