anarchy.website / Heterodox Economics Reading Responses, No. 3
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The Fantasy of Balanced-Budget Conservatism

feat. A Discussion Question

By Chloe, April 22, 2025

This short essay was written as a reading response for a class to chapter 3 of Plotkin and Scheuerman’s book Private Interest, Public Spending (1994). Reading that chapter is not necessary for understanding this but encouraged.

In their chapter on Balanced-Budget Conservatism, Plotkin and Scheuerman outline 3 major principles that define the concept. The first of these is that the government must spend within its means, balance the budget, and reduce if not completely eliminate the deficit. This is ridiculous and undesirable within a capitalist framework because federal government spending is one of the ways in which money is created in the first place and thus economic growth can occur. Especially in times of recession or low consumer and investor confidence, where private interests may be paralyzed with fear over potential risk of investments, fiscally sovereign governments don’t have to worry about this and thus can stimulate the economy even in times of downturn. There’s also the issue with this notion that it literally cannot happen, and its proponents (at least the ones with any sort of functioning brain) know that, and that’s why it never has happened. Governments always run on a deficit because again that’s how governments work, and that’s how growth happens; not doing so would be economically disastrous, creating the very stagflation the ideology purports to oppose. All this principle does in practice is thinly disguise a massive wealth transfer from the poor and middle classes to the wealthy. And speaking of massive wealth transfers, the second principle they identify is returning political power to states, cities, and other local governments, away from the federal government. Under the clever guise of grassroots democracy, balanced-budget conservatism is able to create a system of social welfare that is basically non-functional from the outset, and leave poor communities destitute while the rich get richer. By transferring “power” over social programs to local governments instead of federal, what the budget-minded fail to note is that unlike the federal government, state and local governments are not fiscally sovereign: they do not produce their own currency, and thus their spending doesn’t create new money (unless of course they get it from the federal government). State and municipal governments can acquire funding from subsidies from the federal government, taxes, and private loans and investment. However, with the federal government ever-tightening its belt and attempting to balance its spending with its tax revenue (which they’re always attempting to decrease), there is competition between states for federal funds and such funds are a zero-sum game. Without fiscal sovereignty it makes very little sense for state and local governments to be in charge of funding social programs and development projects; making specific decisions about allocation sure but funding the programs wholesale is an impossible task. But of course the federal government still has to run a deficit, so if not towards things like healthcare, housing, and employment programs, what gets federal funding? Subsidies for agribusiness, pharmaceuticals, tech, military contracts, bailouts to Wall Street, oil companies, etc. Socializing the costs and externalities while privatizing the benefits, all while cutting social welfare programs and levying ever more regressive tax policies. And speaking of tax policies, the third principle of Balanced-Budget Conservatism the authors identify is celebration of cutthroat competition between interest groups. With social welfare, development, and of course subsidies for business becoming a much more zero-sum game under the balanced-budget regime, and taxation playing a much more significant role in determining how much one can spend on these things, a fierce competition between various public and private interest groups stirs. With the government providing fewer and fewer services over time, privatizing more and more necessities resulting in higher costs of living and stagnating wages, all the while increasing taxes to fund what little functions of government remain, one of the few things people have an actual say in with regards to their economic situation is the taxes they can approve or disapprove of at the ballot box. With each group vying for lower taxes on themselves, it becomes harder for governments to balance their budgets, and thus more services need to be cut, in an endless race to the bottom until there’s nothing left for the poor and everything is in the hands of those on top.

So as we can see, Balanced-Budget Conservatism is blatantly incorrect as a theory of government and economics, has never actually achieved the one thing it claims to want, and is a poorly disguised attempt at a massive wealth transfer from the working class to capital. And yet for the last 50 years or so this has been the dominant ideology among all parties at all levels of government in the United States. I recently had the unfortunate experience of hearing an interview with Elon Musk in which he cried crocodile tears over the federal deficit and debt being unsustainable, and how if we don’t balance the budget and pay off the federal debt we would end up in an economic crisis. And it was hard to tell whether he was merely propagating this lie of balanced-budget ideology to justify laying off thousands of public employees, cutting international aid programs, eliminating health and safety regulations, and cutting social welfare programs (aka “business as usual”), or if he really was so stupid as to believe his own propaganda (also a very reasonable explanation). In the case of the former, it is horrifying to see such a drastic shift in power in favor of capital, and such a quick transfer of wealth from the working class to the capitalist class that seems less in line with the speed of wealth transfer over the last 50 years and more in line with a sort of last-minute looting before everything goes up in flames (perhaps in anticipation of economic collapse, ecological collapse, or a major war). In the case of the latter it is perhaps just as if not more horrifying to think that the people who have spent their life propagandized by Balanced-Budget Conservatism ideology and legitimately believe it to their core finally have the reigns of power in their hands and will drive directly into economic collapse by attempting to “balance the budget” and “pay off the debt”.

My discussion question for this week is how do we deal with—and undo—50+ years of propaganda telling us that the federal government must balance its budget against revenue, that running deficits is bad, and that the first things need to be cut from spending are necessities for the poor and vulnerable (healthcare, public housing, education, jobs programs and public sector employees, food programs, environmental protection, food, health, and job safety, etc.)?

Plotkin, Sidney and William Scheuerman. Private Interest, Public Spending: Balanced-budget Conservatism and the Fiscal Crisis. Black Rose Books Ltd, 1994.