The party’s over

Robert E. Wright teaches at the Stern School of Business at New York University and is the author of "One Nation Under Debt: Hamilton, Jefferson and the History of What We Owe."

It’s high time the United States created a second political party. It’s been too long since we had one -- one worthy of the name, anyway. Time was, voters could choose between the big-government Democrats and the small-government Republicans. By degrees, that choice has been whittled away to nothing, at least when it comes to economic matters.

We are all aware of the fiscal mess the federal government has created. The national debt, for example, is larger than ever and is growing rapidly as a percentage of GDP. It now stands at $9.3 trillion-plus. That works out to about $30,900 for every man, woman and child in the country, with no signs of slackening. Not one of the major candidates for president has a plausible plan for stopping, much less reversing, it. And not one has addressed the even bigger liabilities implicit in Social Security and healthcare entitlements.

It would be very easy to blame the American people for this situation. If they really wanted change, some claim, voters would cast the bums out. That may have been the case in the 1950s, the 1970s, even the 1990s. But today, the only choice voters have is between enormous and gigantic government. Only a handful of people dare argue in favor of drastically shrinking the government and its role in the economy.

It isn’t that the idea is unpopular; it’s that few people think politicians can actually get the job done. The system is rigged against change. At some point, bigger became better, and merely slowing the rate of government growth became “conservative.”


It was not always so. The first U.S. party system pitted those in favor of small government against those in favor of tiny government. That’s right, historians have gotten the story wrong. Alexander Hamilton and his Federalists wanted a government that was big and active only relative to what Thomas Jefferson and his Democratic-Republican Party sought.

Both Jefferson and Hamilton would find today’s national debt appalling. Here too historians have erred. His critics’ claims to the contrary notwithstanding, Hamilton did not want a large, perpetual national debt. All the fuss was about whether to repay the national debt over a few years, as Jefferson wanted, or over 30 years, as the “Little Lion” wanted. Hamilton rightly won that round. Returning 2% of the principal per year, an important feature of the early bonds that historians hitherto have entirely missed, was far preferable to distorting the economy with the heavy taxes that would have been required to retire the debt quickly.

But I know why the Jeffersonians wanted to pay off the national debt as quickly as possible and keep the government as small as they could. They realized that a big government would be more likely to run up a big debt of the most pernicious kind, one created to fund current consumption.

The country’s first national debts were all incurred fighting wars, largely for just causes such as independence, freeing the slaves and keeping the world safe for democracy. Today’s national debt is of much more dubious origin. Sure, some of it is left from the Cold War, and some of it is because of the war on terrorism. But most of it has been merely a way for politicians to trick voters with accounting smoke and fiscal mirrors, to appear to give them something for nothing. That, of course, is untenable in the long term. Global investors have already caught on, driving the dollar to modern lows. Many Americans have caught on too and fear the worst.

That’s why we need a second party, one that can unite disgruntled and disenchanted Americans by offering a platform with just a few planks, the most important of which is to spend less than you earn and use the rest to pay off the debt. Tax reform is crucial because our current system is a crazy quilt of conflicting levies. Washington needs to find something simple and popular to tax to obtain most of its revenue. Tariffs no longer fit the bill, but perhaps levies on greenhouse gases do. The second party also needs to find a way to stop the growth of government spending. Shrinking expenditures by deregulating markets is probably too much to ask, at least at first, and could be dangerous -- as many of our markets have lost the ability to function without some oversight. The second party therefore needs to undertake slow, intelligent reforms.

Hamilton, Jefferson and the other founders’ words and vision can guide us. Incur debt if you must, but only for worthy projects. Pay that debt off as soon as you can, but not at the cost of stifling economic growth. That means keeping government expenditures in check by asking not what taxpayers can do for their country, but what the country can do for its taxpayers.