January 29, 2003


THE DANGER OF PORK: Bush's budget increases spending by 4 percent. I don't know if this is "about two percent too much," as Stephen Moore says, but it's certainly pushing the edge of prudence. There will be a large deficit-- economic conditions along with the war make it inevitable. If the deficit gets too big, it begins to present a danger, not so much, as Robert Rubin believes, because of the effect on interest rates (many factors affect interest rates, and the Fed has pushed them down to a historic low), but because of the "crowding out" effect. As Milton Friedman has pointed out,

I do not know whether the tax cuts will or will not stimulate the economy in the short run. They put money in the pockets of taxpayers to spend; but simultaneously they take money out of the pockets of the investors who buy the government securities that finance the tax cut, money which would otherwise presumably have been spent on private investment projects. The net effect on total spending could go either way.
In other words, holding the line on the budget could be critical to economic growth; if the government issues too much debt, it will crowd out investment in the private sector. Congressional Republicans are most willing to sell out their principles when they're larding up budgets with pork; thinking about the danger of a too-large deficit is not particularly comforting.

Posted by John Tabin at January 29, 2003 11:34 AM