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Rebranding unrestrained spending as investment may be smart politics, but the effect on the nation’s balance sheet is unmistakable. Using 2010 numbers, the government is at or near post-World War II highs in terms of spending (about 25 percent of GDP) and debt (over 64 percent). What started under Bush has been put on a fast track to fiscal oblivion by Obama. While the president’s acknowledgement of the need for “reducing the deficit” and call to freeze “annual domestic spending for the next five years” are welcome, his rhetoric and action since taking office make it clear that he is uninterested in running a “government that lives within its means” and promoting an “economy that’s driven by new skills and ideas.”
It’s not just Obama's rhetoric that conjures up his predecessor, properly regarded as a "big-government disaster." Consider education. Over the past decade federal spending has doubled in real dollars; Bush pushed through No Child Left Behind and was uncritically proud of beefing up the federal role in education. When you take a longer view and add in all levels of spending, inflation-adjusted per-pupil spending has more than doubled since 1970 and class sizes have shrunk. Yet the test scores for graduating high-school seniors have remained resolutely flat. The sensible conclusion is that an educational system still based on residential assignment of students to schools and a 19th-century agricultural calendar is broken. Yet the president made no mention of school choice or doing anything other than adding more “investment” into the mix at all levels of education. The missed opportunity is only made more poignant—and frustrating—by the fact that Obama's speech was delivered during National School Choice Week, a broad-based, non-partisan initiative to raise the visibility of and support for increasing the options available to parents and students. There’s plenty of innovation—and cost restraint—going on in education. It’s just being done in spite of the federal government and a president who helped kill a popular and effective voucher program in Washington, D.C.
The same can be said for every other area of federal activity. Under the stimulus, we committed hundreds of billions of dollars to “shovel-ready projects” that were supposedly desperately needed by states and localities and would provide tinder to fuel an economic recovery. That didn’t work because publicly funded projects are driven by politics not demonstrated need. Obama should look at the way that state and local governments have tapped private-sector funds to build and increase transportation capacity. A few years back, Indiana’s Gov. Mitch Daniel overcame terrific opposition from his own Republican party to sign a long-term lease of the Indiana Toll Road, by which the Hoosier State dumped an epic money-losing white elephant on a private firm happy to pay almost $4 billion up front for a 75-year lease, pledge to do precisely the sort of improvements that the state couldn't afford, and follow state guidelines or see its lease revoked. There are literally trillions of dollars in private capital available to fund transportation infrastructure (indeed, most air and freight-train infrastructure is already privately funded). Even China, the nation that seems to be turning Obama’s hair presidentially gray, is building most of its infrastructure with private funds.
The government is spending more and more, seemingly hoping that the next borrowed dollar will somehow transform systems that can’t be salvaged. As those of us who remember all the way back to George W. Bush’s two terms, that isn’t even change, much less change we can believe in.
The Republican response to the State of the Union was delivered by Rep. Paul Ryan of Wisconsin. As might be expected from the new head of the Budget Committee in the House and the author of an unfairly vilified plan to balance the budget (in 2063!), Ryan stressed debt and deficits and the need to get back to core government duties. Yet his party, which walked back from an election pledge to cut $100 billion from current spending even before taking power, has miles to go before gaining any credibility on the issue of fiscal rectitude (Ryan said as much). Other Republicans—most notably Kentucky’s Sen. Rand Paul, who has put forward immediate cuts amounting to $500 billion—are offering specifics. All of that is heartening, even if it barely scratches the surface of what’s needed to bring balance to the federal ledger. Paul’s plan, by far the deepest-reaching of any put forward by a sitting pol, would still leave a $1 trillion debt in 2011. That’s much better than the freeze on a portion of federal spending envisioned by Obama, but it needs to be the starting point of a real conversation, not a longshot proposal by a freshman senator whose toughest election battles were against his own party.
Politicians like President Obama like to talk about the past and the future because those moments are largely aspirational and beyond their control. What the State of the Union address –and most of the spending plans put forward by Republicans and Democrats alike—lack is what Martin Luther King Jr. once called “the fierce urgency of now.” Without immediate action on government spending, we can forget about “winning the future,” unless we dream of a world marked by crippling public debt and inevitably higher taxes.
As we’ve written elsewhere, it’s not particularly difficult to bring federal expenditures into line with historically predictable levels of federal revenue of around 18 to 19 percent of Gross Domestic Product. Indeed, we managed this trick not so very long ago, when Bill Clinton sat in the White House and many of the same politicians in attendance last week sat in Congress. In Clinton’s last year, the feds spent about 18 percent of GDP and no core federal responsibilities were being shirked. What makes it easier still to return to those levels is that real federal outlays, in 2010 dollars, have increased by 62 percent over the past decade. Few of us can tell you where any of that new money went and it’s a good bet that few of us will miss it when it’s gone. Pulling federal spending back to sustainable levels requires making small but systematic cuts in expected spending increases over the next decade: about $130 billion each year out of budgets otherwise projected to average about $4 trillion.
Like any sort of diet, rehab, or budget plan, we need to start today if we want any shot at not just winning the future, but being in any shape to enjoy it. Like Obama, we’ve got young children whose lives are still all ahead of them. In the wake of the past 10 years’ federal spending trends, and last night’s speech, their future isn’t looking all that sharp.
Veronique de Rugy is a Reason columnist and an economist at The Mercatus Center at George Mason University. Nick Gillespie is editor in chief of Reason.com and Reason.tv and coauthor of The Declaration of Independents: How Libertarian Politics Can Fix What’s With America, to be published later this year by Public Affairs.