In Search of A New Fiscal Constitution
Until recently, American political leaders from James Madison to Dwight Eisenhower have been linked together in a fiscal tradition that considers the need to avoid handcuffing future generations with oppressive levels of debt.
But in 2001, that connection was broken, according to Bill White. Thanks to the cost of wars in Afghanistan and Iraq in the George W. Bush administration, debt spiraled out of control. But more importantly, as White lays out in a new book, America’s Fiscal Constitution, the traditional relationship between taxes and spending has been severed, leading to an expected gross U.S. federal debt of $17.9 trillion by the end of fiscal year 2014.
Last week, as part of a Price Research Center Collaborative event, the Bedrosian Center and the Tomás Rivera Policy Institute hosted an expansive conversation with White about his new book, the bipartisan tradition of fiscal responsibility in the U.S., and lessons from a career that has taken him from the oil fields of Texas to positions of leadership in Washington, Houston, and in the energy field.
In his book, White traces the more-fascinating-than-you-might-think history of debt in the country. Debt ballooned at several points throughout history, all correlated to a major war. But in each circumstance, legislators on both sides of the aisle came together in the aftermath to reassert a responsible financial standing by limiting spending and establishing taxes to tame the country’s debts. But in the first decade of 21st century, American political leaders did not follow the practices of their predecessors, according to White.
“Something shifted in this nation in 2001,” White said. “Ever since then, there’s been separate tax and spending policies, which are by and large unrelated to each other. Before then, the principle of a balanced budget forced people to link the benefit of taxes from the government program or award with its costs. And when you separate that link you deprive voters of an important piece of information about the real cost of government.”
Unfortunately, the level of debt racked up by leaders today mirrors borrowing made under very different circumstances in the past.
“In 2010 we were borrowing the same percentage of the federal budget as we were at the very height of World War II, which was the most massive undertaking any nation has ever taken in relationship to its GDP,” White said.
In the case of World War II and at other times, the country has been able to climb out of debt thanks to strong leadership and a bipartisan commitment to balancing the books. When it comes to leadership, the former three-term mayor of Houston and deputy secretary of energy has plenty of ideas on how politicians can manage more effectively and increase accountability. During his tenure as Houston’s mayor, White managed the integration of more than 100,000 displaced residents of New Orleans after Hurricane Katrina, successfully forged several public-private partnerships, and lowered the city’s crime rates, accomplishments he links to managerial experience.
“One of the reasons that Americans are sometimes skeptical of the effectiveness of government is that you have many people in senior positions that never in their life exceptionally managed large organizations,” White said.
Looking ahead, White sees communication as a crucial part of the way politicians can re-establish a financial covenant with the American public.
“The way I look at it is the people who are political leaders should have the burden of explaining to the American public why something is worthwhile,” he said. “If you do that, it strengthens a constituency. If you don’t do that, it won’t be strong. And if the people don’t want to do it and you can’t get a consensus to pay taxes, or a majority vote on how to fund it with taxes then you shouldn’t do it. And you or I may disagree with the outcome, but we do live in a democracy, after all.”