I don't know who advanced the idea of "starve the beast". It does sound like a Grover Norquist idea. The idea is simple: the Federal Government essentially spends itself into bankruptcy. Then, the new government that emerges will be devoid of anything related to the New Deal. I have had a hard time believing that anyone would actually set policies in motion that would lead to this result because the economic damage would be catastrophic.
Perhaps the only way to actually place Bush's fiscal theory into context is an economic suicide pact.
Author Jim Turk puts all the pieces together. It's important to note that Turk is a Gold Bug - someone who is hawking ideas that would lead to an increase in gold's price. That does not mean the basic premise is wrong.
Here are all the pieces of Bush's fiscal suicide pact:
Debt
Treasury Secretary John Snow notified Congress on Monday that the administration has now taken "all prudent and legal actions," including tapping certain government retirement funds, to keep from hitting the $8.2 trillion national debt limit...Treasury officials, briefing congressional aides last week, said that the government will run out of maneuvering room to keep from exceeding the current limit sometime during the week of March 20."
Congress voted to increase the debt limit within the last two weeks.
Bush is as fiscally reckless as any Republican in the last 25 years. Bush started his term with total outstanding Federal debt of 5.6 trillion. Now that total has increased to 8.2 trillion. That's a 46% overall increase and an 8% compound growth rate.
Continuing Fiscal Deficits
The U.S. government ran a monthly budget deficit of $119.20 billion in February, an all-time monthly record that was still slightly less than forecast, according to a Treasury report Friday. The February federal government deficit was 5% greater than a year earlier, according to the Treasury Department's monthly budget statement."
Bush inherited a surplus, which he quickly turned into a deficit (just like every other Republican president for the last 25 years, Bush has not and will never balance a budget). So long as the Federal Government runs deficits, it must rely on deficit financing, which leads to the previously mentioned problem of massive increases in debt.
Decreasing Revenue
Federal revenue peaked at $2.03 trillion in 2000, and then declined for three years, bottoming in 2003 at $1.78 trillion. That's never happened before. Revenue typically declines during a recession, but the most it has ever declined before was two years in a row, during the severe recession of 1958 and 1959. Revenue has rebounded the last two years and reached $2.15 trillion in 2005, but in constant 2000-dollars (i.e., adjusted for inflation), revenue remains 6.3% below that received in 2000.
Despite repeatedly hawking that "tax cuts pay for themselves," the historical evidence says they don't. Under Bush, revenue from individual taxpayers has decreased 6.7%, from 994 billion to 927 billion. Revenues from individual taxpayers as a percentage of GDP has dropped from 9.9% in 2001 to 7.5% in 2005. And as the Congressional Budget Office's recent analysis of the 2007 budget indicates, extending the tax cuts beyond their expiration date will lead to deficits until 2015, totaling over 2.1 trillion dollars.
Massive Spending
While the federal government's revenue has been constrained, not so with expenditures, which have continued to soar. They were $2.47 trillion in 2005, an alarming 38.2% above the federal government's expenditures in 2000. Expenditures soared even in constant 2000-dollars, scoring a shocking 21.8% increase over the five years from 2000 to 2005.
Just like Reagan, Bush is a profligate spender. Just glance at any Republican blogs over the period of a few weeks and you will notice the intense dissatisfaction expressed with the "fiscally conservative" nature of Republicans. Discretionary spending has increased from 649 billion in 2001 to 967 billion in 2005. That's an increase of 48% or a compound annual growth rate of 8.3%. Compare that to Clinton (that evil fornicator who balanced his last three budgets), whose discretionary spending increased from 539 billion to 614 billion- an increase of 14% and a compound annual growth rate of 1.6%.
Increasing Interest Rates and an Increasing Interest Expense Burden
During the 1990's, 24.0% of the federal government's revenue on average was used to pay interest on its debt. During the Bush administration that burden has declined to only 17.5% on average. The reason is that the 5.2% average interest rate paid by the federal government during the Bush administration so far is significantly less than the 7.2% rate it paid on average in the 1990's. It is clear that the lower interest rates engineered by the Federal Reserve after the 2000 stock market peak have favorably impacted the federal government's budget. Lower interest rates reduced its interest expense burden, thereby making the deficits incurred so far during the Bush administration much smaller than they would have been if higher interest rates prevailed
Alan "Sir Prints-a lot" Greenspan's lowering of interest rates is Bush's one saving grace throughout the fiscal disaster he created. As the author notes, interest expense has decreased thanks to cheap money. However, there is no reason to think this will last forever. These are the lowest rates we will see for our lives; rates have nowhere to go but up.
The current US fiscal and international trade deficit situation simply add fuel to the problem. Last year the US trade deficit totaled $781 billion dollars, or 6.5% of US GDP. The size of the trade deficit means the US must import $2.1 billion dollars per day to finance the trade deficit. Although the federal deficit stands at 2.65% of GDP, neither the administration nor Congress have demonstrated any serious attempt to deal with the fiscal problems the country faces. As a result, the possibility of international markets raising their concerns with the twin deficits is always a possibility. Should this happen, expect interest rate increases, which would increase the US government's interest expense.
Here's the bottom line: Bush's overall fiscal policy has placed the nation's finances on an economic precipice. He has slashed revenue and increased spending. The increase in government debt which is cheaply financed by today's low interest rates will have to be financed by more expensive debt in the future. This will lead to higher financing costs. In addition, the total amount of debt from the twin deficits and the federal budget deficit places the US economy in serous jeopardy if interest rates spike.
But remember -- the Republicans are the party of fiscal responsibilty