It is disappointing that the Republican Party has not institutionalized the supply-side principles of low tax rates, benign regulations, rule-based monetary policy, liberalized trade and prudent government spending. Republican politicians campaign for election on these principles, but when they get into office, they abandon them. President Bush has been a stalwart on pro-growth policies for our nation, but Congressional Republicans have been mute on what needs to be done going forward.
Even when they adhere to the principles in their voting records, many Republicans are hesitant to evangelize on their behalf, which is necessary if they are to be institutionalized as the foundation of national policy. And they are not inclined to support pro-growth, supply-side policies during periods of national emergency, such as Katrina, when they are required most.
As Adam Smith said, "Little else is requisite to carry a state to the highest degree of wealth from the lowest but peace, easy taxes, sound money and a tolerable administration of justice, all the rest being brought about by the natural course of things." Smith reminds us that the keys to recovery from nature's wrath and governments' incompetence are the same principles that President Reagan used to recover from the economic stagnation and social malaise of the 1970s. These principles are necessary over the long run to ensure lasting prosperity and essential during times of crisis to restore normalcy and increase prosperity.
Budget deficits have few long-term economic consequences unless they reach proportions far larger than anything we have seen or are likely to see, even with the war in Iraq and the national calamity of Katrina. The deficit is the consequence of government spending too much on nonessential, often harmful programs and slow rates of growth.
"Prudent" spending means spending whatever amount of money is necessary to achieve the limited role assigned to government in our constitutional scheme. Government should spend whatever it takes to deal with the aftermath of Katrina, but Katrina should not be used as a blank check to ratchet up government spending permanently through ill-considered new government programs.