Can the Senate salvage any fiscal probity out of the “big, beautiful bill” that the House GOP sent to the upper chamber? Senator Paul says “I can’t vote to raise the debt ceiling $5 trillion.” He wonders whether anyone is “left in Washington who thinks debt is wrong and deficits are wrong.” Good for him. To get a better bill out of Congress, though, would require the solons to look at the roots of inflation and overspending: America’s fiat money regime. 

The abandonment, after all, of honest money — meaning dollars that are convertible on demand to gold at a legally fixed rate — is what enables the federal government to run chronic deficits year after year and rack up more than $36 trillion in debt. Yet President Trump and the GOP, far from reining in this profligacy, appear poised to “make America’s fiscal hole deeper,” per the Wall Street Journal, via the pending tax and budget bill.

This is not to discount the possibility, as expounded by our Larry Kudlow, that the budget bill’s supply-side tax cuts will improve Uncle Sam’s long term fiscal prospects by fueling growth. “Passing a Republican tax cut will move the economic growth needle to at least 3 percent,” Mr. Kudlow reckons, and that in turn would “add something like $4 trillion to the revenue line,” which would help move the federal budget closer to balance “that much faster.”

Yet Mr. Kudlow, too, concedes there is room for “deeper spending cuts” as the Senate takes up the tax and budget legislation. That’s a reminder that tax cuts and spending cuts are far from mutually exclusive. More ambitious tax cuts, along with more reductions in spending, it would seem, could help move America toward the goal of a smaller, more fiscally responsible federal government. Hence the need for a closer look at the inflation that fuels overspending.

After all, just about half of the federal budget is consumed by federal entitlement programs that automatically ratchet higher every year as a result of mandatory cost of living adjustments. These annual increases are largely based on the rate of inflation, and the Congressional Budget Office makes its projections based on the expectation that prices will rise by 2 percent a year. That, after all, is the target for inflation set by the Federal Reserve. 

Yet how did America’s central bank come up with that goal? “I puzzle about the rationale” for a 2 percent target, is how in 2018  the former Fed chief, Paul Volcker, put it. He saw it as “difficult to be both a target and a limit at the same time.” Worse, he said, the 2 percent goal “would mean the price level doubles in little more than a generation.” Volcker pinned the blame for the 2 percent target on the former head of New Zealand’s central bank, Donald Brash.

Wherever the 2 percent goal originated, it threatens to wreak havoc on federal finances by boosting prices unnecessarily, and in turn pushing up annual entitlement spending, perpetuating the cycle of inflation and overspending. That provides an opening for Congress, which holds the monetary powers under the Constitution, to, say, legislate a lower inflation target for the Fed. That could yield a substantial reduction in projected entitlement spending. 

The larger challenge for Congress is to look at how the fiat money regime in place since 1971 has fueled inflation, excessive spending, and the surge in federal debt. In the heyday of the gold standard, after all, between 1879 and 1913, America achieved some of its greatest growth while holding inflation down to an average of 0.1 percent a year. That underscores the laxity of the Fed’s 2 percent inflation target.

Which brings us back to the budget negotiations on the Hill. Dr. Paul laments that “there’s nothing conservative about” the GOP bill as it stands, “and I just can’t be supportive.” With only a narrow GOP majority in the Senate, that opposition can’t be glossed over. It’s a reminder, though, that conservatives have a chance to produce a high-growth, low-tax budget if they are willing to address the inflation crisis and chart a move back to honest money.