Fiscal Conservatism

Fiscal conservatism is an approach to government finance and economic policy. Its supporters believe that governments should spend carefully, keep taxes low, avoid running large deficits and limit public debt. They argue that money left with households and businesses is usually used more productively than money spent by the state. Fiscal conservatism is mainly about economics, so people with very different views on social and cultural questions can share it.

Ideas of fiscal prudence are old, but modern fiscal conservatism developed in the nineteenth century. In Britain, William Gladstone, a Liberal prime minister, became famous for strict control of spending and for lowering taxes. Until the 1930s, most governments treated a balanced budget as normal policy. After the Great Depression, the economist John Maynard Keynes argued that governments should run deficits during downturns, and this view shaped policy for decades. Fiscal conservatives pushed back. In the United States, Senator Robert Taft and President Calvin Coolidge were earlier symbols of budget restraint, and Senator Barry Goldwater later called for a balanced budget in his writing on conservatism. Economists such as Milton Friedman argued for limited government and stable money, and James M. Buchanan, a Nobel laureate, studied why democracies tend to run deficits and proposed constitutional limits on borrowing.

Some fiscal conservatives focus on balanced budgets and debt reduction, even if this requires tax increases. Supply-side conservatives focus on tax cuts, arguing that growth will help cover the cost. Others focus on reforming entitlement programs such as pensions and health care, which make up a large share of spending in many countries. In Europe, related ideas appear in debates about debt rules and budget discipline.

Critics on the left argue that spending cuts and austerity can deepen recessions, increase inequality and harm public services that poorer people depend on. Many Keynesian economists argue that deficits during downturns help the economy recover. Critics on the right, including some populists and national conservatives, argue that strict budget rules can block needed investment in infrastructure, defense or families. Some observers also note that governments describing themselves as fiscally conservative have not always reduced deficits in practice.

Fiscal conservative ideas have shaped tax reforms, spending reviews, privatization programs and debt rules in many countries. Examples include balanced budget requirements in many American state constitutions, the debt brake written into the German constitution and the fiscal rules of the European Union. Debates over austerity after the 2008 financial crisis were in large part a debate about fiscal conservatism.