In the first part of this article, I explained how there are two meanings to the term ‘fiscal responsibility’: either it refers to an ambition to keep the government budget in balance, i.e., eliminate budget deficits, or it means that we want a smaller government altogether.
These two fiscal policy goals are not strictly mutually exclusive, but in practice, it is impossible for a government to pursue both goals simultaneously. The best way to practice fiscal responsibility is to reduce the size of government; if done right, it will lead to a balance in government finances.
The question I left unanswered was: how do we redesign government spending according to this two-part sequence of fiscal responsibility? That is where Part II picks up.
A policy strategy to reduce the size of government is not uncontroversial by any means. It quickly encounters resistance from those who are ideologically motivated to maintain a big government and to grow it even further. Those who are so inclined will not make sound economic analysis a priority in considering whether or not government should grow bigger.
This means that those who want to exercise fiscal responsibility also need to work from an ideological base. To see why that base can only be conservatism, let us look a bit closer at how it stacks up against its ideological competition.
Let us admit this upfront: when it comes to policy practice, it is easier to be a socialist than to be a conservative. The socialist can pursue his ideology in a simple and linear fashion: all that matters to him is to eliminate economic differences between individual citizens. He has no other concerns and therefore does not have to worry about the economic, social, or cultural fallout of his ideological quest.
The linearity in the practice of socialism consists of a sprawling and unending expansion of government spending. As it happens, libertarianism, the other outlier on the ideological spectrum, has an equally simplistic path from theory to reality. In terms of actual policy, the libertarian’s practice is the very opposite of that of the socialists, but the method for doing so is notably similar: where the socialist grows government in all directions, the libertarian wants to shrink it with the same lack of discrimination or discernment.
Neither socialists nor libertarians have any deeper goals with their policy practice. In the former case, the endpoint is the total subjugation of our lives to government, and as a consequence the inevitable elimination of our freedom. In the latter case, the endpoint is an individual who cannot depend on government for anything, except strictly legal matters.
Socialists and libertarians are equally indifferent to consequential aspects of their ideological practice: the goal in both cases is to transform society in compliance with an ideological abstract, come what may.
Conservatism contrasts with both of these ideologies primarily in that it is not indifferent to the social and societal contexts in which we live. On the contrary, as explained with eloquence in the National Conservative Statement of Principles, family and nation are institutions that we as individuals cannot thrive without. They are the indispensable social and societal contexts of our very existence.
The recognition of family, community, and nation is a necessary starting point for conservatism in practice. It is also the conditional pathway on which we must travel in pursuit of fiscal responsibility. Therefore, any policy reforms that adhere to conservative principles must be configured to:
- Improve the conditions of daily life for individuals, and
- Do so while preserving, and ideally strengthening, the social and societal contexts within which the individual can enjoy the improved conditions that said reforms provide.
In pursuit of fiscal responsibility, we add a third point: - Reduce the presence of government in the finances of able-bodied individuals and their families.
To see how this plays out in practice, let us try to address poverty. A socialist would construct an entitlement program that supplemented the income of the poor; the benefits would raise their income above the poverty level. In a strictly technical sense, this is how the socialist helps the individual.
At the same time, the reform would weaken—and if scaled up enough could eliminate—the incentives that motivate the poor to maintain self-determination. In practice, this means weakening one of a person’s many ties to his societal context. This effect of his reform is of no consequence to the socialist.
A libertarian reform would go in the exact opposite direction, namely eliminating any government support for the poor. However, in his pursuit of this reform, the libertarian would apply the same linear policy design as the socialist has. While taking his idea of unrelenting focus on the individual from theory to reality, the libertarian would seek to remove any (real or perceived) government-imposed hindrances to an individual’s pursuit of self-determination. In the context of a welfare state of the kind that currently exists in Europe or America, this means, e.g., removing regulatory, statutory, and tax-imposed barriers to workforce participation and entrepreneurship.
In theory, such reforms can be worthwhile as they help the free-market economy perform better. In practice, though, they cannot be considered in isolation from the reality in which they are implemented. These reforms can easily lead to such destitution at the individual level that a person loses his or her social-context foothold. This weakens the fabric of families, communities, and in severe situations even entire nations.
A fallout of this kind is more likely the faster the more linear such reforms are implemented. How many people who now live in poverty would be able to quickly improve their situation if all government support was terminated tomorrow?
Much like the socialist, the libertarian considers the harm thus inflicted on the individual as ideologically acceptable collateral damage. Put simply, the context in which the reforms are implemented lacks intrinsic value. That is not the case for conservatives: it is an essential tenet of conservatism to preserve, protect, and improve the relationship between the individual and his social and societal homestead.
The challenge with conservatism in practice, therefore, is to blend the three policy ambitions mentioned earlier: the betterment of the daily life for individuals while preserving or strengthening the context in which the individual lives, while shrinking the presence of government in people’s personal finances.
Luckily, we have a good example to look at for ideas on how to bring conservatism from theory to practice. In Hungary, the conservative ambition for welfare-state reform has resulted in a system where individuals are encouraged to build, maintain, and strengthen first and foremost their social context. This means forming and growing families.
The conservative government in Hungary has been consistent in its ambitions over the past 13 years to promote the strengthening of the family as a social institution. This goal is manifested in a range of benefits, such as a birth grant—a lump-sum payment—to mothers having a baby, a home-care allowance to parents who leave work to be home with children three or younger, a family allowance for all children (with the benefit increasing with the number of children, and a child-raising benefit for families with three or more children and a parent who is not employed more than part time.
Conservatism in practice is manifested primarily in two features that are common to the Hungarian benefits programs. The first and perhaps most obvious feature is the target demographic, namely families with children. In a socialist welfare state, the target would have been individuals who make less money than other individuals who make more money. In Hungary, tax-paid entitlements reflect the very spirit of the eighth item in the National Conservatism Statement of Principles. This item explains:
We believe the traditional family is the source of society’s virtues and deserves greater support from public policy. The traditional family, built around a lifelong bond between a man and a woman, and a lifelong bond between parents and children, is the foundation of all other achievements of our civilization.
The second conservative feature of the Hungarian welfare state is the structure of the benefits. They are not paid out primarily based on the income of the recipient; they are based on personal decisions (to have children). If the purpose was to redistribute income, the benefits would have correlated inversely with the income of the recipient: the more a person makes, the lower the amount of benefit he or she would get.
A welfare state that is centered around economic redistribution runs into all sorts of problems, one being perennial dependency on those very benefits. Workers with lower incomes run into threshold problems where a higher income deprives them of so much in benefits that it may not be worth the while for them to take the higher-paying job. This benefits structure is often reinforced by an income-tax system with multiple brackets, where a raise can push an income earner into the next, higher tax bracket. When the effects on benefits and taxes are added together, a family could even be left with less money than before the raise.
In chapter 2 of my book The Rise of Big Government, I give an example from the American welfare state that shows how this works in real life. In its efforts over the past 10-12 years to reconfigure the Hungarian welfare state, the Fidesz government has increasingly shielded the recipients of tax-paid benefits from these adverse incentives. This has contributed to increased workforce participation and entrepreneurship in Hungary: when people do not face major marginal-income effects from the combination of taxes and benefits, they are more inclined to take on more professional responsibilities, including the financial risks associated with career shifts and self-employment.
As another example of how Hungary has created a family-oriented, conservatism-in-practice welfare state, an OECD report from 2019 on social-benefit reforms in Hungary shows how the government has prudently balanced support for families with another fundamental conservative principle: self-determination. While government benefits can play a meaningful role in taking conservatism from theory to practice, they cannot become the prime source of income for individuals capable of supporting themselves through work.
In line with this idea, the OECD report explains that in 2016-2018, when work-based incomes were rising solidly under a Hungarian economy that grew faster than almost any other European economy,
family allowance rates were left frozen in nominal terms during a period of rapid nominal wage growth, reducing the value of these benefits relative to the average wage.
Furthermore,
Social assistance benefit amounts were frozen in nominal terms between 2016 and 2018 and thus fell relative to the average wage.
Here we have another example of how conservatism can be practiced in the context of a welfare state: When the economy is doing well and workers have good opportunities to support themselves and their families, there is no point in government playing an active role in that support.
By contrast, a welfare state built on the principles of income redistribution—not stronger families—would have increased benefits as incomes grew. When there is a general rise in household income, the difference between higher- and lower-earning workers usually increases. This does not mean that incomes at the lower end decline—they just don’t increase as quickly as incomes do at the top (due to their higher dependency on equity-based income).
When benefits are based on a person’s income compared to what others make, then those benefits rise even as the entitled person earns more money on his own. This absurd feature of most European welfare states, as well as the American version, drives perennial dependency on government. Such dependency, in turn, leads to a weakening of the family as a social context for the individual, but it also detaches people from their societal context. When people work less, their skills tend to become obsolete and they are gradually passed over by economic evolution and the evolving demands on the nation’s workforce.
Again, it is difficult to take conservatism from theory to practice. It requires the management of policy goals that can seem to be mutually exclusive. We do not have the privilege of the socialist or the libertarian, who can roll out their reforms and not care about the fallout, no matter how bad it may be. Yet precisely because conservatism is difficult to practice, we must put our efforts into it: we know from both theory and practice that it works.
