compound annual growth rate in the share of income of 2.4 percent per Over this period, Federal spending rose from three percent (3%) of U.S. personal income in 1929 to eighteen percent (18%) in 1950 to twentyseven percent (27%) in 1978. This represents a compound annual growth rate of 4.4 percent per annum, or almost twice the growth rate of all governments. Even these data do not record the government taxing and spending implicit in the private costs of compliance with the expanding volume of government rules and regulations. On the one hand, these costs increase the prices paid by consumers and governments for the things they buy. On the other hand, they reduce the wages and profits earned by workers and employers. If tax/spending limitations are appropriate for state and local governments, a Federal limit would be doubly appropriate. (2) The Federal government has become increasingly prone During the thirty year period 1949 to 1978, the accumulated deficit of the Federal government was 384 billion dollars, of which $307 billion has been generated in the ten years since 1968. Over this period, surpluses have been realized in only six of the thirty years. The year-by-year data are given in Table II. 1. Only personal income data reported consistently by states. As a share of gross national product, the corresponding percentages are lower by a factor of one-fifth. The computed compound annual growth rate is virtually the same whether computed from personal income or gross national product. Source: The Budget of the United States Government (Various Years) Source: Claremont Economics Institute, Forecast Update, May 10,1979 (3) After 200 years of relatively stable prices, inflation has become the norm. The pattern of U.S. price levels from 1750 to the present is shown in Figure II. Typically, war inflation has been followed by a period of deflation, or falling prices. As late as the mid-1930's, the index of prices essentially was the same as that of 1780. What distinguishes the post World War II period from its predessors precisely is the failure of prices to return to their pre-war levels. The price stabilizing policies of the 1950's were followed by a period of stable prices in the early to mid 1960's. From this point, an inflation fueled by the Federal deficits of the late 1960's and 1970's has proceeded with increasing virulence. Prices, Population, and Productivity If no definitive theory has emerged to explain the growth of government spending in current dollars, there is substantial agreement that prices, population and productivity play significant roles. With inflation, the prices of those things bought through government increase in concert with the prices of those things people buy privately. To maintain the same level of public services from year-to-year requires more spending by governments. As population increases, more government spending will be required to maintain the same level of public services per person. More people mean more schools, more judges, more roads, and perhaps more indigent. The increases in per capita personal income associated with increasing productivity mean people can buy more of everything, including better public services. This can mean safer and smoother highways, greater security in defense, and higher standards of income maintenance. If prices, population, and productivity impact on government spending, they also come to be reflected in U.S. total personal income and gross national product. In the absence of other factors, the growth of government spending would pace the growth of the national income. Spending as a share of personal income would be constant over time. As evidenced in Table I, the data prove otherwise. Government spending has come to represent an increasing share of personal income, and of gross national product. Clearly, factors in addition to or other than prices, population, and productivity have been at work in American Governments. Coalition Politics One such factor, now undergoing theoretical development, may be the coalition characteristics of representative legislatures. As focal points in the budgeting process, legislators are under constant pressure to provide more of each government service. Individuals, singly and as groups, press for their representatives' favorable support and vote on those extensions of government yielding special benefits to them. Failure of a representative to acquiesce to these pressures promises to provoke votes against him when next he faces election. At the same time, legislators are under pressure to reduce the total burden of government borne by their constituents as taxpayers. Re-election activity here, however, is less likely to be well-directed. Given the generality of taxes, what the individual elector must pay in taxes is unrelated to the government services for which he and his family qualify. The individual has little interest in determining how much of his personal tax burden supports those services of particular interest and benefit to him and how much goes to support those services of interest to others. Thus, the successful legislator comes to sympathize with the general taxpayer concern while emphasizing the special interest services provided to his constituency. On the one hand, the representative expresses his concern over the inadequacy of, and supports improvements in, this program or that. On the other hand, he agrees with his constituents that the total budget enacted by his fellow legislators is too large. If they would but see the light, the burden of government could and would be reduced. The legislator is as much prisoner as master. To secure the votes of his fellow legislators for the programs of interest to his constituents, he must surrender his votes in support of programs of interest to other constituencies. Whether he be of conservative or liberal disposition, whether reluctantly or willingly, he finds himself supportive of an engorging government. The campaign promises of yesterday give way to the practical politics of today. The growth of government out-paces the growth of income. If the legislative process, rather than the individual legislator, is the source of excessive taxing and spending, constraint must begin with constitutional change. The Federal Spending Limit Senate Joint Resolution 56 is a constitutional limitation on the growth of Federal outlays, both on and off budget. This growth is restricted to the growth of gross national product. Slower growth is dictated when inflation is excessive. Faster growth requires extraordinary Congressional majorities. State and local governments are protected from temptations to evade the Federal limit. |