“As President,” says candidate Rand Paul, “I will work to authorize common sense solutions that will solve our nation's fiscal crisis.” He has floated a broad proposal for a constitutional amendment that would require the federal government to balance its budget. Soon he will need to start filling in the specifics. Here are some ideas that would combine common sense and fiscal prudence while remaining true to Paul’s libertarian principles.
Toward a Libertarian Fiscal Policy
Paul is no anarcho-capitalist. He sees a legitimate, but limited, role
for government in national defense, law enforcement, the justice system,
and certain other areas. As Ralph Benko notes in a recent Forbes
article, that places him in the classical liberal wing of the
libertarian movement. With the option of zero government off the table,
the remaining minimal state must raise revenue and spend it. A
libertarian of classical liberal inclinations cannot get along without
some kind of fiscal policy, so what should it look like?
principle should be, “Do no harm.” In a medical context, that precept
will be familiar to a physician like Senator Paul. In economics, “do no
harm” means a policy of fiscal neutrality—one of managing both
the revenue and spending sides of the budget in a way that disrupts the
functioning of the market economy as little as possible.
many past Republican proposals for budget balancing do not meet the
standard of fiscal neutrality. Take, for example, the balanced budget
amendment proposed not long ago by Utah Senators Orin Hatch and Mike
Lee. As I discussed in an earlier post,
that proposal, and others that would require the federal budget to be
exactly balanced each year, would be the opposite of neutral.
tax revenue falls when the economy contracts, a rule like Hatch-Lee
would mandate sharp cuts in spending or increases in taxes each time the
economy entered a recession. Those measures would deepen the slump and
prolong the recovery. Even worse, from a libertarian perspective, they
would provide little or no restraint on spending when tax revenues rose
in good times. Lobbyists would descend on Washington like locusts, full
of ideas on how to spend the surplus. In short, requiring strict annual
balance for the current budget is anything but common sense. >>>Read more