It's Time to Balance the Budget | Opinion

Inflation has started to rise. The 5.4 percent increase in June is a disastrous beginning to a potentially devastating cycle. The fact that the standard of living is dropping for the average family is a disaster in human terms—the working poor and middle class will lose purchasing power while the rich get richer.

The Democrats' proposals for even more spending will guarantee even more inflationary pressure, as former Democratic secretary of the treasury Larry Summers has been warning.

The average American is intuitively more worried about inflation than the Biden administration is. In a recent poll for the American Action Network (Transom, July 22) 88 percent of all Americans were worried about the rising cost of living, 86 percent were worried about inflation, 79 percent were worried about rising gas prices and 73 percent were worried about possible tax increases. And this is just the beginning.

In this environment of popular concern about prices, President Joe Biden has rejected Summers' professional advice and said the multi-trillion-dollar new spending will "reduce inflation." This claim verges on madness and is out of touch with historic reality.

In fact, the Biden administration faces a bigger problem than the Carter administration (the last high-inflation Democratic administration) did. When inflation grew out of control under Carter, Federal Reserve Chairman Paul Volcker dramatically raised interest rates. He forced a deep recession (which hurt Republicans in 1982 but set the stage for prosperity and a big Ronald Reagan victory in 1984).

Jerome Powell, the current federal reserve chairman, does not have the maneuvering room to raise interest rates enough to stop inflation. The current total national debt is $28.5 trillion. Annual interest at the current low (indeed artificially low) rates is vital for the federal government and for state and local governments which have also run up huge debts. A Volcker strategy of high interest rates would have a crushing effect on federal, state and local budgets as the cost of servicing the debt would rise dramatically.

Furthermore, a Volcker-style high interest rate, recession-inducing strategy coming after the last two years of economic pain would be deeply opposed by virtually every American.

The only way to avoid a disastrous level of inflation that destroys the American standard of living without creating a deep recession that puts millions out of work is to cut government spending dramatically. This is the logical corollary to Summers' argument that high spending on top of inflation guarantees even higher inflation.

The COVID-19 pandemic has already driven government spending too high while also slowing down the economy. The Biden-Democratic massive spending increase is pouring trillions of dollars into an economy which does not have enough goods and services to absorb the money, giving us a textbook case of how inflation grows. The Carter economy back in 1979-1980 had the same problem.

I knew the problem was out of control when the District of Colombia's government texted me an offer to pay the next three months of my rent—and to pay any back rent I had not been able to pay over the pandemic. Since I got this text message even though I don't live in D.C., I assume the total number of people being offered money is unbelievable. The Biden-Democratic message seems to be "when in doubt, spend and borrow."

Joe Biden
WASHINGTON, DC - JULY 22: U.S. President Joe Biden meets with advisors, union and business leaders about infrastructure in the Roosevelt Room of the White House on July 22, 2021 in Washington, DC. The $1.2 trillion bipartisan infrastructure plan could get another chance to move forward in the Senate on Monday. Drew Angerer/Getty Images

The crisis of incompetent government wasting your money while it sets the stage for inflation is captured by one simple case study. Up to half of unemployment funds paid out during the pandemic were lost to fraud. As Axios reported, this amounts to about $400 billion of taxpayers' money. What do you think is going to happen with all the new money Biden and the Democrats want to print?

Finally, it is impossible to seriously cut spending in a vacuum or without a powerful moral and political case. Since everyone in the bureaucracy and Congress will move to protect their spending, programs and projects, it is virtually impossible to get serious reductions in place.

The only way to deal with a spending mess the size of the Biden-Democratic program is to reestablish the goal of a balanced budget.

We found in the late 1990s that when congressional Republicans insisted on balancing the budget, everyone came to understand that they were going to have to sacrifice. The result was a collective will to find savings, pass reforms and reach a historic goal. Without the goal of a balanced budget, we could never have achieved the savings that were needed.

When Republicans won the House in 1994, President Bill Clinton submitted, on Feb. 6, 1995, a budget with $200 billion deficits for the foreseeable future. We rejected it and forced him to come along in adopting the balanced budget goal.

We implemented a balanced budget campaign as a team, and the results were astonishing. When Congressional Republicans took office in 1995, the Congressional Budget Office projected that over the next decade the cumulative federal budget deficits would total $2.7 trillion. Four years later, in January 1999, it projected that over 10 years federal surpluses would total over $2.3 trillion—a four-year turnaround of $5 trillion in the financial outlook of the United States.

Tragically, the Republican leaders failed to remain focused on controlling spending, reforming government and balancing the federal budget. However, the 1995-1999 congressional Republican record was remarkable.

There is a moral case for balancing the budget. There are already building blocks for a balanced budget. And the scale of waste and corruption that will be saved by balancing the budget is astounding.

This is the best path forward for stemming inflation without devastating millions of American families.

To read, hear, and watch more of Newt's commentary, visit Gingrich360.com.

The views expressed in this article are the writer's own.