In pushing for spending caps, Governor Haley and the South Carolina House of Representatives are pushing Grover Norquist talking points, part of a strategy “to shrink government to the size where we can drown it in a bathtub,” rather than good public policy.  Besides, we already have spending caps.

This past week, Representative Garry Smith of Greenville introduced another in a several year effort to limit the growth in state government spending.  He calls this one (H. 4709) The Cut , Cap, and Balance Act of 2012. It would limit spending growth to the growth in population and inflation in the cost of a market basket of household goods.

South Carolina already has two spending caps.  First, the South Carolina Constitution won’t allow us to spend more than we take in.  That cap led to substantial cuts in General Fund spending during the recent downturn.

We also have a spending limitation based on growth in personal income.  State spending (General Fund, highway funds and EIA) has been shrinking relative to personal income – the best measure of our ability to pay for public goods.  In FY95-96, we spent 7.5 percent of personal income.  In FY11-12, we are spending 4.8 percent. Even if you add in the faster-growing Other Funds and Federal Funds, FY2011-12 appropriations are the same proportion of state personal income as in FY1995-96—14.6 %.

We could quibble with the formula—using the Consumer Price Index, based on a market basket of consumer goods, is simply an inappropriate measure of inflation for state and local governments which necessarily shrinks government.  We could also take exception to the anti-democratic provisions allowing a minority of legislators to stop waivers of the limit.

But at core, the real problem with spending caps is that, at best, they are designed to freeze us in place.  At worst they make things much worse as Colorado found out when it imposed these limits.  Even if you use an appropriate inflation factor, the best you do is what you are doing today.  Governor Haley encourages  magical thinking by requiring Cabinet agency employees to tell callers “It’s a great day in South Carolina.”  Saying it doesn’t make it so.

The anti-government crowd repeatedly utters the mantra:  “We have to run government like a business.” They then proceed to propose running government like a poorly run business with no hopes of prosperity—a business that loses talented people because they won’t pay market rates; that lacks customers because they won’t advertise or invest in customer service; and that falls behind in productivity because they won’t buy better equipment.  Can you imagine a business that imposes spending caps based on some unrelated formula?  Where would Apple be if Jobs and Wozniak had said:  “Every year, we will only increase spending on people and equipment by the same proportion as population and inflation increase”?  Nowhere is where Apple would be.

What a smart business-person would say is:  “What are we trying to accomplish?  If we make additional investments, what  is the return on those investments? What is the return on alternative investments? What is the return on not investing?” If you want to run state government “like a business,” then run it like a smart business and not like a corner shop on the verge of bellying up because of poor decisions.

Spending caps confuse making a budget with figuring out what our state needs to improve the well-being of our people, including growing our economy.  At times we will figure out that those needs require us to raise taxes or to change spending priorities to reallocate resources.  At other times, they will require us to spend less.  But to assume that the only strategy is to spend less is to ensure that where we are today—in educating our children, improving our infrastructure, providing public safety, protecting abused and neglected children and seniors, the developmentally challenged and the mentally ill and ensuring a healthy population—is the best we will ever be.

If none of those things matters to you, then drowning  South Carolina  government in Norquist’s bath tub by imposing Governor Haley’s spending cap is the answer.