(Corrects figure for spending beyond defense and veterans’ benefits, Social Security, Medicaid and interest payments to $1 trillion in eighth paragraph.)
The 2012 election is shaping up to be an ugly battle fought along familiar, uninspiring lines: Democratic believers in big government against Republicans determined to cut taxes.
This is the wrong fight. The important challenge today is to make government smarter and more effective, not slightly bigger or smaller. Voters don’t need a simplistic choice between a new Franklin Roosevelt and a second Ronald Reagan, but rather competing visions of how the federal government can better fulfill its core missions.
The attached figure shows the time path of federal spending and revenue relative to gross domestic product over the last 40 years. Until the 2009 explosion, the ratio of spending to GDP stayed within a narrow range between a low of 18.2 percent (in 2000 and 2001) and 23.5 percent in 1983. Until the recent, recession-related, ballooning of public expenditures, the Gipper held the post-1946 record.
Republicans, who often pledge to reduce federal spending, don’t have a great track record shrinking the share of government to GDP. Federal outlays as a share of GDP rose under three of the last four Republican presidents, and it’s easy to understand why. Cutting taxes, which Republican administrations did regularly, is fun and popular, but doing so without lowering spending is just passing the buck to our children.
Cutting spending is far harder, especially when it comes to defense, veterans’ benefits and the generally popular entitlements, such as Medicare and Social Security, which together consume about 57 percent of the budget.
Although we do need to slow the growth of entitlements, I doubt either party has the guts to risk voter ire by unilaterally limiting Medicare’s generous benefits or increasing the Social Security eligibility age. Wasn’t it the Republican Party that that raised the specter of “death panels” to discredit limits on Medicare services?
The past 10 years teach us that either party, when it controls both the legislative and executive branches, faces powerful political pressure to expand entitlements as a way to curry favor in swing states. Reform, if it happens at all, will surely require both parties to share responsibility for telling fiscal truth to powerful voting blocs.
Candidates from both parties should be committed to undoing recent spending increases. But once we get back to 2008 spending levels, all federal spending beyond defense and veterans’ benefits, Social Security, Medicaid and interest payments, comes to about $1 trillion, or 7 percent of GDP.
Government’s GDP Share
Cutting even 15 percent of that money will be tough, given that advocates of liberal spending will argue that our government is already quite small relative to the size of the public sector in other developed countries, and cutting 15 percent would mean reducing government’s share of the economy by 1 percentage point.
Once we get spending back to 2008 levels, there is more to gain by improving the public sector than by blindly cutting further. Improved efficiency offers the prospect of making proposed expenditure reductions far less painful for the nation.
This is particularly obvious in poverty-related spending, where across-the-board cuts will inevitably and significantly harm poorer Americans. Better spending offers the prospect of more care at less cost.
The federal government plays an important role in caring for the disadvantaged, because the migration of companies and wealthier individuals limits the ability of smaller jurisdictions to take care of their poorer citizens. If you try to create a local welfare state, the poor come in and the rich leave.
Whatever obligation Americans decide they have to the less fortunate should be fulfilled at the national level.
But the U.S. now follows an anti-poverty strategy cobbled together since the New Deal. We have four large and essentially separate programs, handled by three different departments: Medicaid (Health and Human Services), Temporary Aid for Needy Families (also HHS), Food Stamps (Agriculture) and Housing Vouchers (Housing and Urban Development). These programs are often administered by local agencies, and they often don’t communicate with one another.
A 21st-century anti-poverty program would ensure that similar households would get similar levels of total benefits. It would look holistically at every household receiving public support, and determine whether a recipient is getting the right mix of financial support and aid in kind, such as housing vouchers or medical benefits. Is providing so much aid in the form of food stamps appropriate given the U.S. obesity epidemic?
We might even follow the example of Mexico’s Progresa program and tie some support to desirable behavior, like regular checkups for children or ensuring school attendance.
We should start by pooling our anti-poverty programs under a single agency chief with a mandate to provide the most effective aid given a fixed budget. That agency would have responsibility for providing aid to poorer Americans, and should have the flexibility to pursue that goal as long as it provides abundant information about its successes and failures.
When it comes to infrastructure spending, we should move away from the traditional model of congressional earmarking and move toward a system like the one adopted by Chile, where the government facilitates private investment funded by user fees.
Once upon a time, it was expensive to pay for roads with tolls, so we turned to gas taxes. But technology has made it easy to charge drivers without tollbooth personnel or even forcing users to slow down. Singapore, the second densest nation on earth, has free-flowing roads because drivers pay for the congestion they cause.
Paying for infrastructure with user fees is the best model for rebuilding America because it eliminates bridges-to-nowhere and pushes us toward more economically valuable investments. The public sector still needs to help plan and coordinate infrastructure, but the actual road construction and maintenance can be done by properly regulated, privately funded entities.
The future of the U.S. depends on our children’s skills, and better schooling for all is the best and most sustainable way to create a more just society. But smart federal education spending shouldn’t just be a substitute for local spending. Good federal programs should emulate Race to the Top by prodding for change in underperforming districts that are held captive by bureaucrats and unions that want to maintain the status quo.
Because we are far from knowing how to fix U.S. education, we need more experimentation and innovation and a constant flow of data.
Defense needs a good dose of activity-based accounting, which will tell Americans what military capabilities are provided by different forms of spending. There need to be better metrics that will help evaluate and expand the more efficient ways of defending U.S. interests, while cutting spending where it does the least good.
Just like any well-run private-sector organization, the federal government should rely on constant analysis of costs and benefits. If you are convinced that the public sector is too big or too small, you should demand better accounting to help make your case.
If the Republicans want to really show that they can improve the country, they need to provide a clearer vision of how they are going to make the public sector more effective at educating our children, speeding our commerce and protecting our nation. If President Barack Obama wants to win re-election, he should spend more time pushing the government into the 21st century and that doesn’t mean just spending more money.
(Edward Glaeser, an economics professor at Harvard University, is a Bloomberg View columnist. He is the author of “Triumph of the City.” The opinions expressed are his own.)
To contact the writer of this article: Edward Glaeser at firstname.lastname@example.org.
To contact the editor responsible for this article: Max Berley at email@example.com.