Thursday, June 22, 2006

Starving the Beast: Readings

I have written here, here, and here about the concept of starving the beast, which is to cut taxes in order to force reductions in government spending. I consider the concept valid. And I find that the present administration is no more (and no less) profligate than other administrations post-Great Society, when the profligacy ushered in by the New Deal became a permanent fixture of federal spending.

Several related items have come to my attention:

"Starving the Beast" Just Does Not Work, by Bill Niskanen (Cato@Liberty), repeats the arguments that I dealt with in the first and third of the above-linked posts.

Nick Schulz, writing at NRO in Tax Cuts = More Spending?, takes on three pundits whose perverted reading of Niskanen suggests (to them) that tax cuts actually cause spending increases.

Chris Edwards of Cato@Liberty writes in Starving and Feeding the State Beast about

a new report by the National Association of State Budget Officers [that] indicates a clear Starve the Beast pattern at the state level. (See Table 2 on page 3.)

In years when revenue growth was slow — early 1980s, early 1990s, and early 2000s — state legislators moderated their spending increases (they are generally required to balance their budgets each year).

Finally, and perhaps conclusively, there is a long-forgotten article by Henning Bohn, which appeared in the Journal of Monetary Economics (Volume 27, Issue 3, June 1991, Pages 333-359): "Budget balance through revenue or spending adjustments? Some historical evidence for the United States." This is from the abstract:

The paper provides a historical perspective on the issue of whether budget deficits are typically eliminated by increased taxes or by reduced spending. By examining U.S. budget data from 1792–1988, I conclude that about 50–65% of all deficits due to tax cuts and about 65–70% of all deficits due to higher government spending have been eliminated by subsequent spending cuts, while the remainder was eliminated by subsequent tax increases.