“If at the end of the day we need to raise taxes, we should raise taxes”

That statement makes the case sound pretty open and shut. It’s a good thing Reagan didn’t listen to everything Mr. Volcker said, or we’d be in even deeper trouble now. The Library of Economics and Liberty has this to say on Reagan and Volker:

“High inflation was the result of a dozen years of bad fiscal and monetary policy under two Republicans — Nixon and Ford — and two Democrats — Johnson and Carter — that was brought under control only when Paul Volcker, the Carter-appointed head of the Federal Reserve, jammed interest rates up to national-heart-attack levels and left them there until inflationary expectations were well and truly tamed. Reagan had nothing to do with unemployment and interest rates falling; that was the inevitable result of a drastic monetary tightening finally working its way through the economy.”

The more we hear about Volcker, the less there is to like. True, he brought down inflation, but only by raising interest rates. No one dares address out of control Washington spending, right? Instead, we’ll just tinker with the Federal Reserve piggy bank. A Democrat at heart, the only answer Volcker has to any budget crisis is higher taxes.

That’s a shame. With so much redundancy in government spending, so many failed programs, and funding of State programs that shouldn’t be Federally funded, it seems like there are lots of ways to cut deficits without raising taxes. Of course, no one can deny that pork is built right into Washington politics. If you try and rip away any entitlements watch the liberals go after you. If you try to take away a farm subsidy or military spending, watch the Republicans go after you.

Maybe Volcker is right, but for a different reason. If Americans won’t stand up and tell Washington to just stop the spending (even if it costs them personally to do so), we may just need to have another tax. At the end of the day, Volcker deserves this one piece of credit: A new tax is better than going further and further into debt.

Better still would be to knock off the out-of-control spending. But without government power and money, how would any votes be purchased?

Unlike the Federal government, States cannot print money. Even though their borrow capacity and their corruption capacity exceeds any household by a mile, they still face the same basic economic realities ordinary citizens face (albeit on a bigger and more protracted scale). When States like Illinois fail to balance their budgets, they simply stop paying their bills, jobs get cut, lawsuits are filed, and legislators panic. There is no magic government money tree for Illinois. There is no Federal Reserve Bank to create more cash. The 2009 stimulus plan is basically a State bailout, but even that is woefully inadequate to address the mid and long term struggles these States face.

State budget difficulties could be a good thing, however. Because States have to actually confront budget problems, they are forced to (eventually) fix them. Some may decide to raise taxes as California did, other will make tough choices like slashing programs for things like education, such as NJ Governor Chris Christie. Still others will attempt to audit State budgets and eliminate fraud, waste and abuses. These are all legitimate choices. Naturally, the conservative prefers the latter two choices to the former, but they are all on the table. At least the decision actually gets made at the State level…eventually. They can’t vote to increase their debt ceiling infinitely, as Congress recently did.

When the Federal government is forced to quit living off Federal Reserve notes, they will have to make the same decisions. The popular policies of handouts, giveaways, and entitlements, will necessarily come to an end. Social spending will be left to the State government. If they cannot afford it, it won’t happen. The 10th amendment will be in force because it has to be.

Conservative activists insist on rigorous enforcement of the 10th amendment not only because it is the Founder’s vision, but also because it is the only way to hold politicians accountable. Any financial officer is only credible when they have limits to their budget. States meet that criteria. It isn’t perfect and it takes too long, but the job eventually gets done. New Jersey is evidence that tough choices will eventually get made. That’s more than we can say for the Federal government.

I was proud to work on the Adam Andrzejewski campaign for the IL governor seat. We didn’t win.  But today the ideas live on, because Illinois no longer pays it bills. Something has to give. At the State level, it always does…eventually.