Gillespie and de Rugy on Fiscal Cliff Deal: Obama and Boehner are Both Reckless Spenders
Over at Bloomberg View, Veronique de Rugy and I have a piece about how both President Obama and Speakers Boehner—and Democrats and Republicans—are ignoring the disastrous role that government spending plays in our economic problems.
In negotiations over the so-called fiscal cliff, U.S. President Barack Obama is calling for $1.4 trillion in new tax revenue over the next decade.
The Republican opposition, led by House Speaker John Boehner of Ohio, has signaled that the Republicans could stomach generating as much as $800 billion in new revenue over the next decade, or half of Obama's number.
Such a large difference obscures a more fundamental agreement: Neither side is interested in addressing the central role federal spending plays in creating persistent deficits and, more important, damping economic growth.
Drawing on recent work by economists including Carmen Reinhart, Kenneth Rogoff, Vincent Reinhart, Alberto F. Alesina, and Silvia Ardagna, we argue related points: Large, persistent deficits and high levels of debt act as long-term drags on economic growth; that cutting spending is the most effective way to reduce the debt-to-GDP ratio; and the sharp reductions in government outlays are not only possible, but likely to help grow the economy. Indeed, there are many examples of that, from the U.S. experience after World War II to a variety of developed countries in the '90s.