Tag: budget

Let’s Copy the Baltic Nations and Really Cut Spending

All the talk of spending cuts in Washington is fictitious. Even the House Republican Study Committee budget allows spending to increase, on average, by 1.7 percent each year for the next decade. The Ryan budget, which critics deride for its “savage” cuts, allows spending to rise by an average of 2.8 percent each year. And Obama’s budget allows spending to climb, on average, by 4.7 percent each year—which is more than twice the projected rate of inflation.

Too bad American policymakers can’t copy the Baltic nations of Estonia, Latvia, and Lithuania. Like the United States, these nations got in fiscal trouble, thanks to the combination of excessive spending and an economic downturn triggered by falling real estate prices.

But unlike the United States, these nations didn’t follow the Keynesian policy of more deficit spending. Lawmakers in the Baltic nations recognized, to borrow the words of Dan Hannan, that “you cannot spend your way out of recession or borrow your way out of debt.”

So they reduced spending. Not in the Washington sense, where politicians get to increase spending and call it a cut because outlays didn’t rise even faster. The Baltic nations imposed real cuts. And not just for one year, but in both 2009 and 2010. Here’s the data from the European Union for the Baltic nations.

Interestingly, it appears that fiscal restraint has been very successful for the Baltic nations. After suffering a steep downturn, economic growth has returned. Amazingly, Estonia is even back to having a budget surplus.

It’s also worth noting that other nations have enjoyed great success with fiscal restraint. This video shows how Canada, Ireland, Slovakia, and New Zealand dramatically reduced the burden of government spending by freezing or capping outlays. Not quite as impressive as what’s happened in the Baltics, but definitely very good compared to what’s been happening in the United States.

Monday Links

  • Regulatory privilege is not consistent with competitive markets–that’s why Fannie Mae and Freddie Mac need reform.
  • Thank goodness the U.S. Supreme Court found that education tax credits are not consistent with the fictitious notion of a “tax expenditure.”
  • President Obama’s budget plan is not consistent with either his own deficit commission’s plan or the Constitution.
  • The modern “Executive State” is not consistent with Article II of the Constitution.
  • Cyberbullying laws are not consistent with the First Amendment and our concept of free speech:


The Budget Impasse: Who’s to Blame?

Today POLITICO Arena asks:

Will there be a budget deal? And has Obama shown himself to be a capable leader throughout this budget impasse?

My response:

Will there be a budget agreement? Who knows. Has Obama shown himself to be a capable leader in this budget battle? Please. One thing is clear, though: It’s beyond rich for Democrats to blame Republicans for this budget impasse.

Let’s  remember that we’re talking about the budget for the fiscal year that began last October, which should have been passed well before then — when Democrats held the White House and both chambers of Congress by wide margins. In all that time, however, they couldn’t pass even one appropriations bill. Why? Because they were trying to game the November elections.

Well they lost those elections — big time. Yet even in the lame-duck session, when they still held all the cards, they couldn’t pass a budget. Now they blame the Republicans? For listening to the voters? What do they think those elections were about? Chopped liver?

Paul Ryan and Political Discipline

Today POLITICO Arena asks:

Paul Ryan’s budget – hard-headed fiscal sanity or inhumane?

My response:

Either we discipline ourselves, painfully, or soon enough the Chinese and other lenders will do it for us, more painfully still, by refusing to loan to us any longer at currently low interest rates. And in that event, the debt service will be all consuming. Neither individuals nor nations can go down the road we’re on without paying the price.

Margaret Thatcher put it plainly: “The trouble with socialism” – let’s be honest, we’re socializing the costs of our appetites by imposing them on our children and grandchildren – ”is that eventually you run out of other people’s money.”

Inhumane? The inhumanity is among those demagogues who put us on this path, promising something for nothing year in and year out. Paul Ryan deserves our gratitude for biting the bullet at last. The ball is now in the court of the demagogues.

Largest Spending Cut Ever?

The Washington Post said today that a plan to “cut $33 billion from the federal budget” would be “the largest one-time reduction in U.S. history.”

Really?

The $33 billion in Democratic-proposed cuts are less than 1 percent of this year’s total spending, so we are considering very small cuts here. However, it is also true that Congress has been far more interested in growing spending than in cutting in recent decades. Still, the Washington Post said “in U.S. history,” which is a long time.

This federal budget table shows total federal spending since 1901. Total spending fell in 22 years out of the last 110 years. In 19 of those 22 years, spending was cut by more than 1 percent, or more than this year’s proposed Democratic cuts of $33 billion.

Indeed, even with $33 billion in cuts, total federal spending will still rise by more than $200 billion this year due to rising “entitlement” costs. And even in raw nominal dollars, the Washington Post isn’t correct because total federal spending fell $37 billion in 1946 and $61 billion in 2010.

We can also consider the $33 billion in proposed cuts within the applicable budget category–nondefense discretionary (NDD) spending. And we can adjust for inflation in order to fairly compare cuts in different time periods.

A $33 billion cut would reduce NDD this year by about 7 percent in constant dollars. This budget table shows that President Reagan and Congress cut NDD by 13 percent in 1982 in constant dollars.

So here is what we have discovered: Congress has reduced overall spending numerous times in the past; total spending will rise substantially this year even with proposed cuts; and Reagan cut nondefense discretionary spending more than the current $33 billion proposal would.

One year of small budget cuts won’t solve our fiscal problems. The budget-cutting drives of the early 1980s and mid-1990s made a bit of progress because they were sustained over a number of years while the economy boomed. Thus, the real challenge for Republicans will be whether they can follow up this year’s small cuts with much bigger cuts next year and beyond.

Monday Links