The Time for Spending Cuts is…

The old bromide that citizens elect presidents for protection from other people’s congressmen was reversed last November when a Congress was elected for protection from the president.

That was a nice lead for Michael Boskin’s WSJ op-ed. Op-eds are of course limited to something like 1,200 words. Even so, I don’t think the average reader will grasp the key issues from this piece. What projected future spending vs. GDP is Boskin proposing? He starts off sounding like he wants to slash 2011 spending. The closing paragraphs are where you’ll find his long-term policy points:

(…) In the 1980s and ’90s, federal spending was reduced by more than 5% of GDP to 18.4% in 2000—a level sufficient to balance the budget at full employment and allow for lower tax rates. It was a remarkable period of growth, and there’s no reason we can’t repeat that success. In addition to rolling back ObamaCare and rolling up remaining TARP and stimulus funds, spending control should include these major reforms:

• Consolidate, eliminate, defederalize and, where feasible, voucherize with flexible block grants. I pointed out in 2007 that 42% of federal civilian workers were due to retire in the coming decade. Replacing half of them (with exceptions for national security and public safety) with technology could improve services and save hundreds of billions of dollars. Beyond the savings, it would make necessary services more efficient. For example, the federal government’s many separate job-training programs should be consolidated and voucherized to enable citizens to obtain commercially useful training.

• Adopt successful business practices where possible. For example, consolidating IT infrastructure, streamlining supply chains, using advanced business analytics to reduce improper payments, and switching from expensive custom code to standardized software applications could save more than $1 trillion over a decade while upgrading and improving federal support and information services.

• Gradually move from wage to price indexing of initial Social Security benefits. This would eliminate the entire projected Social Security deficit without cutting anyone’s benefits or raising anyone’s taxes. Also, raise the retirement age over several decades, preserve early retirement and disability, and strengthen support for the poorest. On Medicare, former Clinton Budget Director Alice Rivlin and House Budget Committee Chairman Paul Ryan propose gradually moving to fixed government contributions to purchase insurance, for large savings and more informed care.

The immense growth of government spending and soaring public deficits and debt are the major sources of systemic economic risk, here and abroad, threatening enormous costs by higher taxes, inflation or default. The problem is not merely public debt. A much higher ratio of taxes to GDP trades a deficit problem for sluggish growth. In recent decades, the large advanced economies with the highest taxes have grown most slowly. And the high-tax economies did not have smaller budget deficits. Rather, higher taxes merely led to higher spending.

Elected officials too often ignore long-run costs to achieve short-run benefits. But government policies can neither revoke the laws of arithmetic nor circumvent the laws of economics. The time to start reducing spending is now.

Block grants are one example of how incentives can improved. Block grants should have an impact on state spenders similar to the impact that school vouchers or medical savings accounts have on voters (who are usually frugal with their own money, but happy to spend “government money”).