Cutting Government Spending is Politically Possible
The received wisdom in the United States is that deep spending cuts are politically impossible. But a number of economically advanced countries, including Sweden, Finland, Canada and, most recently, Ireland, have cut their government budgets when needed.
Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997. The Liberal Party, headed by Jean Chrétien as prime minister and Paul Martin as finance minister, led most of this shift. Prompted by the financial debacle in Mexico, Canadian leaders had the courage and the foresight to make those spending cuts before a fiscal crisis was upon them.
Excess spending is a long run problem that reduces economic growth. Getting re-elected is a problem in the short run. Since future generations are composed of people who are either not yet born or below voting age, politicians satisfy short-term goals at the expense of long term problems.
If the Canadians can do it, surely we can do it.
I agree with Devon.
Problems with federal spending have to be too big to ignore for politicians to do something about it. I don’t think it’s “real” enough for the American public to push for reform.
What’s the problem? Just suck it in and cut.
Cutting spending has to be politically possible, because increasing taxes probably isn’t. For the past six decades, federal tax revenues as a percent of GNP have hovered around 18.5%. Federal spending is now around 25%. The 25% number is going to have to come down to the 18.5% number.
The problem with cutting spending is that far too many Americans (almost 50 percent!) receive welfare and other benefits from the government and pay no federal income taxes whatsoever. They don’t care that the other half works to pay for their benefits; they’re only concerned with making sure that their government check comes in on time. So before we can reduce taxes, we’re going to have to reduce the dependent class. In the meantime, the productive part of the electorate should start by putting their capital on strike. One way to do this is by parking your money in less productive areas of the economy like real estate, gold, art, collectibles, etc. or by going Galt (i.e., earning less).
As a Canadian, I would disagree with Prof. Cowen that Canadians “trust” their governments more. In a country with surplus income (i.e. any income greater than subsistence level, which Canada certainly is), the people would gladly surrender more of their income to government in anticipation of a fiscal crisis. They would not demand that government cut back. (Provincial government cutbacks were as important as federal cutbacks.)
Nevertheless, it is the result that counts: Canada now ranks higher than the U.S. in the Heritage Foundation/Wall Street Journal Index of Economic Freedom.