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America’s Fiscal Constitution tells the remarkable story of fiscal heroes who imposed clear limits on the use of federal debt, limits that for two centuries were part of an unwritten constitution. Those national leaders borrowed only for extraordinary purposes and relied on well-defined budget practices to ...
America’s Fiscal Constitution tells the remarkable story of fiscal heroes who imposed clear limits on the use of federal debt, limits that for two centuries were part of an unwritten constitution. Those national leaders borrowed only for extraordinary purposes and relied on well-defined budget practices to balance federal spending and revenues.
That traditional fiscal constitution collapsed in 2001. Afterward—for the first time in history—federal elected officials cut taxes during war, funded permanent new programs entirely with debt, grew dependent on foreign creditors, and claimed that the economy could not thrive without routine federal borrowing.
For most of the nation’s history, conservatives fought to restrain the growth of government by insisting that new programs be paid for with taxation, while progressives sought to preserve opportunities for people on the way up by balancing budgets. Virtually all mainstream politicians recognized that excessive debt could jeopardize private investment and national independence.
With original scholarship and the benefit of experience in finance and public service, Bill White dispels common budget myths and distills practical lessons from the nation’s five previous spikes in debt. America’s Fiscal Constitution offers an objective and hopeful guide for people trying to make sense of the nation’s current, most severe, debt crisis and its impact on their lives and our future.
“Something remarkable a fascinating book about our economic history America’s Fiscal Constitution tells the story of how America has dealt with its debt since its founding, and in doing so provides a compelling roadmap to a more responsible fiscal future.”President Bill Clinton
“Perhaps the best chance to avoid fiscal Armageddon will come from educating the public in the pre-Keynesian virtues of balancing the nation's books. To this end, ‘America's Fiscal Constitution’ serves a noble purpose.” the Wall Street Journal
“An unusual and important book [White] is no starry-eyed optimist and recognizes the serious political obstacles to his program. But he argues that because the reforms he supports aim to revitalize a fiscal tradition that has deep roots in American culture and history, the public can be brought around to support the sometimes painful choices they would require.”Foreign Affairs
“However, rather than merely argue in the abstract, the author undergirds his case by recommending specific steps to alleviate the crisis, including, among others, establishing solely tax-financed budgets and putting bonds up for national election.
Reading between the lines, White is recommending much more—and therein lies controversy, especially when it comes to military spending. A book that deserves much attention.”Kirkus Reviews
“Our nation cannot be strong militarily, diplomatically or politically unless it is strong economically, and we cannot remain strong economically unless we deal with our massive debt burden A must read for those who believe that we should get our economic house in order.”James A. Baker III, former Secretary of the Treasury and Secretary of State
“In order to understand our fiscal plight, it's crucial to appreciate how carefully America has dealt with debt in the past. Bill White makes that tale fascinating.”Walter Isaacson, best-selling author and former CEO of CNN and managing editor of Time magazine
“ Lucid and pioneering a compelling and illuminating formula for both economic growth and fiscal restraint."James MacGregor Burns, Pulitzer Prize-winning historian and Professor Emeritus at Williams College
“There are few Americans I trust more than Bill White. With history as his guide, White trailblazes through the Washington, D.C. bureaucratic jungle, revealing Big Truths that are bolstered with Hard Facts.”Douglas Brinkley, Professor at Rice University and CBS News Historian
“A thought-provoking and well-told history of our nation's traditional financial principles. Every citizen can benefit from this book’s practical insights.”Ross Perot
“Bill White's thorough understanding of both finance and government allows him to trace the history of America's path to the edge of fiscal irresponsibility.”Erskine Bowles,Co-Chairman of National Commission on Fiscal Responsibility
“Powerful, penetrating and persuasive a tour de force of our fiscal history. A timely and important contribution to the raging debate on our fiscal future.”Kent Conrad (D), former Chairman of the US Senate Budget Committee
“Our federal statutory debt is now larger than the entire American economy. This is unsustainable. Everyone needs to read this book now.”Pete Domenici (R), former Chairman of the US Senate Budget Committee
“By decrying skyrocketing federal deficits and debt, this author — a banker and former mayor of Houston — shows he’s not a typical Democrat
White makes reform suggestions but mainly shows how different today’s federal attitude toward public debt is from what it once was.” —Pittsburgh Tribune-Review
I shared the frustration so many who have watched the federal government lurch from one budget crisis to another in each of the last several years. My business experience taught me that poorly defined problems are difficult to solve. I set out to use the history of federal debt as a backdrop to clarify what recently went wrong. In doing so I discovered the neglected and inspiring story of what had once gone right.
Before 2001 the federal government had not always balanced its budgets. However, it had borrowed according to informal but well-understood rules, an unwritten fiscal constitution. For most of the nation’s history, federal leaders incurred debt to finance spending for only four accepted purposes. Time-tested budget practices curbed the temptation to use debt for the purpose of hiding the routine cost of government.
The triumph of an unwritten or traditional American fiscal constitution would not have surprised James Madison, the architect of the written Constitution. He had hoped that the new US government would limit debt by application of principles that would be clearly “visible to the naked eye of the ordinary politician.” Many generations of ordinary politicians used those principles to make budget decisions that now seem extraordinary. The very nature of federal borrowing, not just its magnitude, changed fundamentally after 2000. Never before had the federal government waged prolonged wars without raising taxes. Never before had the federal government relied so heavily on foreign creditors. Never before had the president and Congress intended to finance a permanent vast new domestic program—the Medicare Prescription Drug, Improvement and Modernization Act of 2003—entirely with debt. Never before had a Democratic president and Congress tolerated, much less insisted on, the substitution of federal debt for payroll contributions supporting the Social Security trust fund. Never before had “conservatives” spearheaded opposition to a constitutional amendment requiring a balanced budget. Never before had mainstream leaders in both major political parties claimed that balancing the budget in normal economic conditions would damage the nation’s long term economic growth.
Trends in public opinion or ideology cannot adequately explain these shifts in budget policy. Americans did not wake up some morning and resolve to saddle their children with debt. The photo-finish 2000 election furnished no mandate to borrow. Even excluding debt incurred to pay for wars and recession-related relief, the federal government borrowed large amounts with a Republican president and Republican Congress, a Democratic president and Democratic Congress, a Republican president and Democratic House, a Democratic president and Republican House.
Many people believe that it is now politically impossible to balance the budget. My practical experience makes me more optimistic. For much of the last decade I served as the mayor of the nation’s fourth largest city, with a population greater than many states. Like most other cities, counties and states, it abided by laws that prevented the use of debt to fund routine operating expenses. Almost daily I explained to citizens the tradeoff between taxes and spending. They did not always agree with the choices we made, but I learned that people from across the political spectrum respected the need to balance public obligations and tax revenues.
I do not believe that Americans suddenly chose to elect short-sighted people to public office. Most members of Congress in 2001 who supported borrowing for routine expenses had worked hard in the 1990s to balance the budget. For some of that time, as a chief operating officer of a cabinet department who worked to cut spending, I found that leaders in each party supported good faith efforts to promote financial discipline. For two decades I have known our presidents and many congressional leaders in each party. They and others willing to endure the ordeal of elections care at least as much about their country’s future as do other citizens who sit on the sidelines.
History offers a valuable perspective on the nation’s sixth, and current, debt crisis. Budget battles have raged in every session of Congress since Washington took office. Today rising federal debt does threaten the value of investments, the availability of medical care for older Americans, and the viability of future American international leadership. But contemporary budget dilemmas seem manageable when compared to those that confronted Americans immediately after the Revolution, the Civil War, and tough sixteen years of Great Depression and World War II.
Americans have often treated their nation’s exceptional history as a form of secular scripture, a source of inspiration and instruction. Citizens who despair of a government lurching from one annual budget crisis to another can find new hope in some old traditions. The federal government steadily paid down debt during Thomas Jefferson’s administration. Jefferson believed that the nation could ultimately invest more in public improvements if federal leaders reduced the share of tax revenues required to service prior debts. He believed future voters would best be able to judge budget policies by comparing the track record of “different epochs.” I wrote this book with Jefferson’s vision in mind.
Posted June 27, 2014