We Need To Starve The Beast Regardless................

Does Government Spending Create Value?

The most common view about the national debt is this: “We are $14 trillion in debt, which is so big that we probably need to save money by spending less on some of our federal programs, and doing without the benefits they provide.” The implication in this statement is that we have two desirable goals competing for our favor. First, we want to get out of debt, or at least stop it from increasing. Second, we have helpful federal programs that should continue.

The first statement is true–we need to reduce our debt to maintain our national integrity. But the second statement is often false–many of our most expensive federal programs actually do harm. For example, federal aid to education pours billions of dollars into schools (and school bureaucracies) every year, but test scores have gone steadily downward for four decades. The years when federal aid first increased sharply, 1964-70, were the very years that SAT scores for high school students first began their steady decline. My Hillsdale colleague, economist Gary Wolfram, estimates that more than 40% of the adults in Detroit are functionally illiterate. Yet they have had a torrent of federal dollars pumped into their city and into their schools.

A second example is welfare. By increasing Aid to Families with Dependent Children (AFDC) in the 1960s, we provided more federal money, Medicaid, and rent subsidies to single mothers. Granted, single mothers have a tough job, and they often deserve our help. But the federal aid gave some of them incentives to have more children and not to get married (because they would lose the aid). Children born to unwed mothers increased from one in twenty in 1960 to one in four by 2000. Federal money seems to have increased that problem.
The solution is not to shun schools or unwed mothers. The solution is to strengthen the tie between the giver and the receiver. When a family or a church helps single mothers, both groups gain. The mother knows someone cares, and the church members take delight in improving society. When a teacher is paid mostly by students, or the parents of students, rather than by government, the teacher knows he or she must deliver a useful product or payments will not continue.
Cutting much of the federal budget may help our country, regardless of whether or not the national debt is reduced.