Senator John Cornyn

October 30, 2008

A guest post by Panhandle Poet.

Fiscal policy, which is the level of taxes and spending, is one of two tools used by government to influence the overall performance of the economy.  The second tool, monetary policy, which is the manipulation of the money supply within the economy, is the tool we commonly see used when we hear of the Fed raising or lowering interest rates.

Taxes place a drag on the economy because they shift income from earners to a significant consumer of that income - the government.  Government is necessary for providing certain services, yet is an inefficient allocator of spending.  There is frictional loss of economic power through the re-distribution process.  However, taxes are necessary to fund the government and have been structured through the years to influence behavior through various exemptions and credits.

Government spending on the other hand can stimulate the economy.  This creates conflict however, because of the offsetting drag of taxation to fund that spending unless funded through borrowing.  Borrowing moves the burden of the stimulus temporally.  If unchecked, it can consume an inordinate amount of the budget and drain the economy of its energy.  There is also the ever-present danger of inflation which, since the late 1970's, has been mostly controlled through careful attention to monetary policy.

When social engineering agendas drive the legislative process, we see an imbalance enter into fiscal policy.  Such imbalances can overload the ability of monetary policy to make corrections and keep the economy functioning properly.  Over time, continued pressure for sustained economic growth while creating an overburden of debt, creates a situation in which significant corrections must occur.  When such corrections are further influenced by corrupt practices and insufficient oversight, significant economic turmoil will be the result - as we are currently experiencing. 

The social agenda espoused by the Democratic Party, coupled with the re-distributive schemes of their nominee for the Presidency, would cause dire consequences to our economy if enacted.  The solution to our current woes is to shift spending away from an inefficient government and into the hands of the people who earned it.  Government should return to the role of oversight and policy rather than attempting to nationalize our financial institutions.