Wise Words On Government Spending

A column by Dick Army and Matt Kibbe in the WSJ ledes thusly:

The primary economic challenge today is that our government spends too much money it doesn’t have, and it is involved in too many things it cannot do well and shouldn’t do at all. This burden is manifested by a $1.3 trillion annual deficit and a $14 trillion national debt. The more pernicious effects of this fiscal drag are unseen: a debased dollar, massive (and hidden) unfunded liabilities, and a crushing burden on would-be job creators.

Milton Friedman correctly argued in 1999 that the “real cost of government—the total tax burden—equals what government spends plus the cost to the public of complying with government mandates and regulations and of calculating, paying, and taking measures to avoid taxes.” He added, “Anything that reduces that real cost—lower government spending, elimination of costly regulations on individuals or businesses, simplification of explicit taxes—is a tax reform.”

 Well said.  They go on to identify some $3 Trillion in possible spending cuts over a decade.  Some thoughts interlineated [and some paragraph breaks added]:

Still more savings can be realized by eliminating taxpayer-funded bailouts [Yes, please.  Taxpayers should not be changing who wins and loses in the market].

We need to cut the cord between taxpayer wallets and Fannie Mae and Freddie Mac [Taxpayers also shouldn’t be supporting sub-prime loans, and regulators need to stop pushing them]. As Alabama Rep. Spencer Bachus, the new chairman of the House Financial Services Committee, said last March of Fannie and Freddie, “Taxpayers have already contributed more than $127 billion to the bailout and they are on the hook for hundreds of billions more.” The CBO estimates that the cost to taxpayers could rise to $389 billion. Others estimate it will take around $1 trillion. Fannie and Freddie need to be broken up and returned to the private sector now. [I would also explore tax relief for renters to match the mortgage interest deduction, especially after seeing how home-ownership has contributed to labor immobility during the recession.]

. . . Eliminating subsidies to ethanol and for unproven energy technology produces $170 billion in savings over 10 years, according to the Cato Institute’s recent “A Plan to Cut Spending and Balance the Federal Budget.” [Plus, food prices go down as we stop subsidizing the conversion of corn to fuel — a win win.]

Scaling back the number of government employees to fiscal year 2008 will save $35 billion, according to calculations from the office of Wyoming’s Rep. Cynthia Lummis.  [How does one argue that 2008 staffing levels are some sort of Armageddon?]

Other 10-year Cato spending cut estimates: Scrapping the departments of Commerce and Housing and Urban Development saves $550 billion; ending farm subsidies would produce nearly $290 billion. [I like the cut of your jib, sirs.  But let’s be cautious in scrapping entire agencies.  A better approach would be 1) eliminate failed programs and redundancies immediately, 2) while studying whether the agency can be eliminated altogether.

Cutting NASA spending by 50% would save $90 billion. [First, evaluate the civilian and other benefits of space exploration a bit more, along with further consideration of partial privatization of space efforts.  A 50% cut of an inherently costly and long time-horizon area might not be the best idea.]

Repealing Davis-Bacon labor rules produces $60 billion. [Eliminate a rule that adds both bureaucracy and above-market pay?  Why is there even a question?]

Ending urban mass transit grants would save $52 billion. [Uh, yeah.  Why should Idahoans and Nebraskans help finance boondoggles in California that will not cut pollution and never financially come even close to supporting themselves?]

Privatizing air traffic control, as other nations have done, saves $38 billion. [No clue about this one, but there is no inherent reason private companies can’t handle air traffic control.]

Privatize Amtrak and end rail subsidies and save $31 billion. [No, kill Amtrak.]  Reform federal worker retirement, $18 billion. [Yes, please.  Key words — “defined contribution.”]  Retire Americorps, $10 billion. [What the hell do we get for that, anyway?]  Shutter the Small Business Administration, $14 billion. [I’ll reserve judgment, but we certainly need to reform it.]

Defense spending should not be exempt from scrutiny. With such dramatic increases in appropriations, it is not plausible that all resources are being spent prudently. Defense Secretary Robert Gates has proposed savings of $145 billion over five years. That’s a start.  [Careful, guys.  Defense is a core — no, the core — responsibility of government.  Work on waste, but don’t put us at risk, especially with an increasingly active China.

. . . The most complete work on entitlement reform comes from Wisconsin Rep. Paul Ryan, the new chairman of the House Budget Committee. Mr. Ryan’s “Roadmap for America’s Future” combines a gradual slowing of Social Security benefit growth with optional personal accounts that seniors would own and control. As for the Big Three health-care programs—Medicare, Medicaid and tax subsidies for employer-sponsored health benefits—he converts them into capped contributions to individuals (part of Medicaid would be block-granted to states).

This is a powerful, patient-driven approach, allowing individuals to take control of their own dollars. In total, the Ryan approach would powerfully realign incentives and would, according to the CBO’s analysis of the Roadmap last January, reduce government spending by $370 billion a year in 2020.

All in all, a potent reminder that government spending is not that hard if you first focus on what government should and should not be doing.

Published in: on January 18, 2011 at 8:20 pm  Leave a Comment  

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