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Wednesday, December 14, 2016

Crony Deals are the Symptom – Focus on the Cause

The real problem is and will contine to be the challenge of holding down down government spending.


Over recent weeks, the nation’s news cycle and news feeds have been dominated by discussions of the relative merits of… targeted tax breaks to corporations.

In stark contrast to the Beltway-centric standoffs over tax extenders several years ago, this time, the debate went mainstream thanks to the involvement of President-elect and human viral article Donald J. Trump.

So much for a post-policy world.

Weighing concerns about cronyism and rent-seeking against a desire for any and all relief is no easy debate.

The actual policies at stake, though, are fraught with as many emotions as disputed facts.

Political junkies will remember the 2015 video showing Carrier employees erupting in anger as plant managers announced they would be closing the Indiana-based facility and moving to Mexico in order to maintain profitability. Perhaps more than anything else in recent memory, this painful clip showed just how little discussions of globalization and macroeconomic policies matter in the face of the desperation of lost livelihood.

Most of the conversation since Carrier announced its new plans to stay and preserve roughly 1,000 jobs played out in similarly broad, emotional terms. It should be little surprise that 87 percent of Republicans, 54 percent of independents, and 40 percent of Democrats recently said the deal improved their opinion of President-elect Trump.

The support has not been universal, though. As with tax extenders, the debate split the right. Former governor Sarah Palin called the deal “cronyism.” Representative Justin Amash led the charge in Congress arguing that these types of breaks are economically indistinguishable from direct subsidies, and a dangerous example of government picking winners and losers.

Meanwhile others on the libertarian spectrum (as in Republican politics before) tend to see these types of arrangements as an imperfect step in the right direction, or a justifiable way to get back what government takes.

In this recent case there is also the matter of the role of a President – is it economically or politically dangerous for him to involve himself directly in these matters? (Or in Carrier’s case, was he a main player to begin with?)

Such a tedious debate may never find resolution. But it seems obvious that it will continue over the next four years. Although neither side might readily admit it, both have compelling points that are not unique to Trump’s incoming administration or the Carrier deal.

Fiscal conservatives are right to be conflicted – weighing concerns about cronyism and rent-seeking with a desire for relief in whatever form it can be accomplished is no easy question.

The real problem is to hold down government spending as a fraction of our income.

Ultimately, the Carrier deal itself is a small gesture with powerful implications of the direction the new administration will take in its promised push to bring back jobs.

What’s more, the deal perfectly illustrates that we can expect our incoming President to continue taking full advantage of a media that still hasn’t learned how to handle his control of the news cycle.

Fiscal conservatives would be wise to learn skills the media has not.

The Real Problem

Ultimately, the Carrier deal is a question of symptoms. As important as these questions are, we cannot allow ourselves to forget the true problem: Runaway government fueled by limitless spending and debt.

Milton Friedman famously summed up this problem years ago:

“Keep your eye on one thing and one thing only, how much government is spending, because that’s the true tax … If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing. The thing you should keep your eye on is what government spends, and the real problem is to hold down government spending as a fraction of our income, and if you do that, you can stop worrying about the debt.”

Heading into the Trump administration, there is little sign that fiscal conservatives will be able to stop worrying about the debt anytime soon.

There have been some remarkable and incredibly satisfying Tweets about wasteful programs and sacred cows (and we can only hope one day that he will live-Tweet his way through an entire budget request), but in a larger sense, fiscal conservatives are right to be at least a little on edge.

We have a Republican President who has both pledged not to touch major spending drivers at all, and also to pursue a massive infrastructure program – meanwhile enjoying a historic victory and Congressional mandate.

Leaders in his party have already pledged to put the brakes on runaway budgets or big spending projects, which is an encouraging sign.

But for these efforts to be successful, anyone who cares about our country’s fiscal health should remain focused on ensuring fiscal champions in Congress do not have to act alone.

We may never solve disputes over just how to deal with the symptoms of a government gone wild – but keeping our focus on the root problems is just as crucial now as it was during the last eight years.