Here’s how we can grow the economy while shrinking the Federal government
Burrow down beneath all the shouting and finger-pointing and you find that there’s a broad consensus in American society about two things:
1. We need to shrink the size of the Federal government, which is currently unsustainable. Roughly a third of our government is paid for with borrowed money. Even massive tax increases won’t keep the bloated bureaucracy afloat.
2. We have to grow the private sector economy. Jobs are the #1 preoccupation in every political debate and in every campaign across the country.
Unfortunately, neither political party has offered a credible plan for accomplishing these things, or even for moving us substantially in the right direction.
President Barack Obama’s budget proposals show red ink out into the future as far as we can see. Republicans, meanwhile, are offering a voodoo economics plan that failed dismally in the 80s and 90s.
And the tea party movement? They don’t even pretend to have a plan. All that anger may be cathartic, but it won’t accomplish the two goals outlined above.
So here’s my back-of-a-napkin plan for sustainable private-sector growth with a smaller Federal government.
First, guarantee that Federal interest rates will remain low over the next decade. It needs to rise a little — say to 1% — but businesses need to know that capital will be widely available over the long haul.
This will introduce a level of confidence and security that will inspire banks to begin lending again, while companies will begin borrowing more aggressively.
The danger of low interest rates, of course, is that the economy will overheat, sparking inflation and squeezing the labor pool.
Instead of cooling off the nation’s economic engine with interest rate hikes, however, the government should apply the breaks with systematic and targeted Federal layoffs.
Beginning when private-sector unemployment rates hit 7% — likely sometime in 2012 — Federal agencies should begin shedding employees, trickling those workers back into the job market.
These “non-essential” workers should be identified and notified well in advance. They should understand that they don’t have permanent futures in the government sector.
They should be encouraged to pursue training, early retirement, and other professional opportunities, so that the transition back to the private sector can be as non-traumatic as possible.
The goal should be to cut roughly 10% of the Federal workforce over the next decade. But if unemployment begins to rise again — say, topping 8% — public sector layoffs should be suspended temporarily.
The idea is to shrink government slowly and steadily, without triggering another deep recession.
Similar targeted cuts should be made to Federal subsidies paid to farms and corporations. With low-cost capital more widely available, those direct cash payments should be slashed by at least the same 10% amount.
If we use this kind of government downsizing — rather than interest rates — to stabilize the economy, we will go a long way toward solving the two great problems confronting American society.
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“Republicans, meanwhile, are offering a voodoo economics plan that failed dismally in the 80s and 90s.”
If I made a comment like this, I would be pounded by comments of “prove it”, etc.
By what measure(s) was this period an economic failure? Prove your statement, please.
The difficult part may be providing the type of confidence to private sector business that will make them to start hiring. I am keenly interested in your projection that unemployment will be down to 7% in 2012.
Supply siders believed tax cuts would “pay for themselves” Results? On Jan 20, 1993, when Clinton took office, 75% of the total government deficit (that means since 1790) had been incurred during just the previous 12 years during the Reagan and GHWBush administrations.
David Stockman, considered the architect of the republican fiscal policy during Reagan (the creator of Reaganomics, in other words), has had some interesting stuff to say about it in recent years… and about “modern” Republican economic policies.
In other words, it isn’t just liberals expressing what Brian just said about voodoo economics. Worth checking out, for anyone still drinking that kool-aid, so to speak.
Of course, he isn’t overly thrilled with what the Dems have done either.
Brian, you are on the right track here. Unfortunately the current administration (that I am sure you support) is doing just the opposite. Take a look at this older Post article, some of the newer ideas on the table now make it even worse:
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/02/AR2009030202935.html
Is your idea to “grow the private sector economy” the ten year cap on interest rates? That may be a good idea. But that will not do much. What you need to do is get businesses to spend the trillions of dollars in cash the are sitting on. We have seen some comments on these blogs lately about the fact that president Obama has not been given enough time to fix all of the “Bush” damage. One thing that is correct about that is that we also have misread what made the prosperity of the 1990’s. Two things innovation that was driving the market, and across the board tax cuts done to “fix” the recession of the early 80s. Why not try what has already worked? That is open for debate, there is no debate that we are on the wrong track now. Brian if you like the idea of a smaller federal government I hope you voted for John McCain.
JDM, The proof is in the pudding. Reaganomics promised trickle down would result in everyone being better off, “a rising tide floats all boats” they said. The theory was that debt didn’t matter because growth would generate more revenue and that would take care of the debt.
Results? Reagan ran up more debt than all previous administrators combined and Bush I topped that. Clinton balanced the budget briefly but Bush II trashed it again and topped the Reagan & Bush I debt. The only people for whom revenues rose were the rich while everyone else watched “Lifestyles of the Rich” on TV and fantasized that someday soon we would all join their ranks. Get real.
Ideas like this may be all well and good if we were living in a vacuum, but the real world is encroaching. The underlying assumption is that our present predicament is business as usual, that steady growth is still possible even though increasing evidence points to an age of energy supply constraints and the prospect of higher prices. What we really need to be doing is preparing for the “next crisis”–scarce or expensive fossil fuels. The federal government isn’t the only thing that is unsustainable, our whole way of life needs to be dramatically downsized.
The least our elected officials can do is start telling the truth. In England and Germany there is some acknowledgment of these growing problems. Government will probably shrink during the next crisis, but so will the private sector.
Thehard part is defining where the “bloated bureaucracies” are. “We” say we want smaller government but we definitely want the water we drink not to make us sick and airplanes to stay up in the air…and have little faith in the “magic of the marketplace” to achieve ends such as those.
Some good thoughts here. I think the economy will grow again and I think the promise of long-term available credit would be a sort of lubricant, more effective and with less impact on the deficit than tax cuts. And yes, we would need to have a very hard-nosed debate about where the cuts would fall.
But if every agency in the government, including the Defense Department, were told to achieve an average of 1% employment reductions annually over the decade beginning in 2012, I bet they could do it without major ideological tensions.
In many cases, we would need to return to a level of government services that we enjoyed in, say, the mid-80s. That’s not exactly draconian.
The alternative is simple: The government employment bubble will burst in much the same way that the dot-com, finance sector and construction bubbles burst.
We’re already seeing this occur in state and local government employment, where layoffs are accounting for much of the jobs contraction in the overall economy.
–Brian, NCPR
Brian, businesses ability to borrow isn’t the issue. They are, as was stated previously, sitting on trillions. The problem is they fear to use that “nest egg” because of Gov’t actions. This has been reported numerous times, even on NPR. They saw what FDR did back in the 30’s and fear a repeat of the micro management of that era. Who in their right mind would risk their companies future by using up their reserve at a time when gov’t tax policies may well become even more punishing?
I agree the Federal gov’t needs to downsize and reduce it’s overhead. I fail to see how your idea would do that though. Our debt is whats crippling us and it’s caused by ridiculous spending practices, the Big 3 entitlements and Defense and low revenue. Down sizing the Federal Gov’t work force by 1% is a start, but it’s a drop in the bucket.
I think you need to flesh this idea out a little more. I have a problem with using the Federal Reserve to artificially keeps interest rates low, they’ve proven to be a disaster lately. In fact, they truly do need a public audit ASAP. Beyond that, where in your plan is the mechanism to lower the unemployment number to 7% from it’s current “unadjusted” 18-22%? 7% UE would be a boom these days.
Discussions like this fascinate me, please convince me there’s a workable plan here.
How about we start by looking at what the federal goverment’s job is and then requiring our elected officials to abide by it. As far as the tea party movement not having a plan, the so called tea party movement is just a catchy phrase promoted by the major media. But what is really happening is a lot of people are starting to pay attention and what they are seeing they do not like. The people are tired of our politicians destroying the economy, our childrens educations our relations thoughout the world by senseless wars and so on. How can you put a label on that. I do like that you throw out a few ideas on how to fix things although I disagree with the details, the point is that is where our countries focus should be. If we can call this movement anything I suggest it be called a REVOLUTION
Very little of federal spending goes to salaries, most of it is for entitltement spending.
There are larger forces at work here than government spending and a debate about private and public sectors. There is a correlation between energy price spikes and recessions over the past three or four decades. Our current situation is no exception. Presently, developed world energy use is plateauing while developing world energy consumption continues to grow. Price hikes and supply problems loom. Politicians are not destroying our economiy, resource depletion is undercutting the concept of growth.
Interest rates are very low now and no one is borrowing or lending.
I think however that Brian is correct; having confidence in some sort of stability over time is the key. One of the reasons that business does not hire more people is that we have made it risky and expensive to hire people in the US and there is not a confidence in the future costs of hiring people or the future costs of doing business in the US. The government should say that the government burden or cost of hiring individual workers in the future will not go up and in fact will fall. There will be no new payroll taxes no new health care taxes and less regulations surrounding employment. I work for a small agency we would hire another person right now ; except that the affiliated cost burden surrounding that hire are too high for us to handle, when we add in the benefits we simply can’t afford to do it.
I don’t mind having less government workers, but is that the reason we spend so much? What I mean is from what I can tell outside of the military, most government spending does not go to the salaries of government workers. In addition things like the farm program and farm subsidies are a tiny percentage of our federal spending. If we don’t cut defense, Medicare, Medicaid, social security and reduce the looming massive costs of the new health care bill it’s all window dressing.
Brian,
You say the federal government borrows a third of its budget.
One stat: 38% of the current year’s deficit is owed to the Bush-era tax cuts and the spending on the wars in Iraq and Afghanistan. There seems to be a pretty easy fix, IMO
Much of the future deficit problems are the result of escalating medical costs cutting into MediCare. Again, there’s an easy fix in single-payer
Finally, where does the current deficit fit in with U.S. deficits historically?
I don’t think it’s actually that bad. And if you think about it, that’s traditionally a lot less than most people borrow, percentage-wise, to finance their homes (and that’s pre-subprime bubble and easy credit, for all of you Fannie Mae scolds).
Mervel,
New health care bill won’t add to the deficit. It cuts it:
http://voices.washingtonpost.com/ezra-klein/2010/03/cbo_health-care_reform_bill_cu.html
Businesses aren’t hiring workers because it’s too expensive to insure them, and they can have it done cheaper by overseas slaves.
The Fed interest rate of 1% is absurd, especially when banks can charge credit cards as high as 30%.
Just cut the Fed payroll by 10%? Why not match Cuba and try for 50%.
After they’ve seen Washington and Albany, put them back on the farm and put the mega-farms out of business.
I vote for getting rid of the DEA and ATF as good places to start.
Oh, and business wouldn’t need to worry about the cost of health care fro their workers if we had the same national health insurance for everyone.
OA I hope that is true.
If health care costs and health insurance premiums fall then indeed that will help business hire new employees.
Right now health care insurance is going up again after they passed this bill, I don’t know if that is in anticipation of health care reform when it hits next year or maybe other reasons? For now most businesses and anyone who hires do not have confidence that health care costs are going to go down. The proof will be easily measured and I hope you are correct because it will make a difference in hiring. I for one wish that employment had nothing to do with health care that they were totally separated.
One more thing, Brian. I think most people have fewer government services now than they had in the mid-80s. Lots of stuff has been privatized since then.
But OA, the government in real terms is substantially larger than it was in the 1980’s.
Just received notification that medical premiums are going up 12-13% at year’s end. Weren’t they supposed to go down?
Obama care WILL NOT cause prices to fall. It can’t, it never could, it never will. What you want to believe and what actually happens are two different things. Even the Obama Administration is back peddling on their forecasts of falling medical insurance costs, so just forget that idea.
If you want to jump start business investment then you have to give them something to work for, and that means a larger, more stable chance for growth and profit. No one is in business to lose money, only the Gov’t does that. So come up with a simple, effective way to assure business that they will have a near certain chance for growth over the long term and they’ll invest those funds. How? Tax cuts, reduced gov’t mandates and costs, maybe even a few protectionist measures, though that goes against the grain for me.
You know, trickle down did work to an extent. It just took a lot longer than forecast and wasn’t readily apparent. The tech boom of the 90’s can be attributed in some measures to the trickle down theory- leave money in the hands of those able to invest and they will, creating jobs and wealth. The part no one likes is that the investors got to keep their profit. The rich got richer, shame on them.
The department of health and human services just put out a report. As a result of the “affordable care act” the costs for health care will go up for almost everyone relative to what it would have been w/o the bill (this is projected out to 2019). There will be more Americans insured but everyone’s costs will be higher. This is not a FOX news report but one drafted by the HHS (the administration).
This does not surprise the majority of the country that was saying this during the debate, but it does show how the debate was pretty dishonest from many sides. It was said that it would lower costs, and it was said that it was not only an effort to insure more Americans. Sounds pretty dishonest to me?
This is what the president will have to run on in 2012. They keep talking about what the republicans should be running on? The democrats are beginning to have some results (like this one). This is what they will have to run on and defend. The president got some pretty tough questions from some of his strong supporters yesterday. That will intensify over time. This massive growth in the federal government that Brian (rightly) says will continue to harm the US economy is another platform that the democrats need to better define and defend.
“But OA, the government in real terms is substantially larger than it was in the 1980’s.”
Yes, Mervel. But that’s not what I or Brian said. He and I are talking about government SERVICES. Those have decreased since the 1980s (looked at your bridges and water/sewer lines lately?).
For reasons why government grew, see, among other things: Health care costs, Reagan defense buildup, Afghan and Iraq war (and associated contracting, which I don’t see as govt services), and Homeland Security–which is as often a nuisance as it is a service.
It’s the choices we’ve made as a country. And keep making.
Here’s how we can grow the economy and shrink the government:
Repeal the sixteenth amendment.
Once everyone gets 100% of their own money, and has to write a check back to the government, bye-bye leisure trips on Air Force One!
OA,
Yes government is probably less effective in how it spends money than it was in the past we agree. The more we put into government the less we have seen in services, why would you expect something to change in the future? The way to get out of a hole is to first stop digging. Yes I would agree that we should spend much less on the defense, along with cutting Social Security, medicare and medicaid, it is the only way the budget can be cut.
The only way to grow the economy is to support business and to particularly support small and medium sized business in the US the places where most jobs are created. Do those businesses see the government as a friend or foe in their struggles?
Yes, Mervel. But without infrastructure, small and medium sized businesses can’t create jobs, either. I think they see government as a friend when it helps build liveable communities with safe drinking water, viable transportation links and regulates a dependable power and communications grid.
But we’d rather buy tasers for cops, have bullying border searches, start needless wars and argue about mosques that aren’t mosques.
That’s not government’s fault, Mervel. It’s yours and mine.
Adding, I think small businesses like it as well when government regulates financial titans so they don’t blow up the private enterprise system.
According to my health insurance carrier the trend in health insurance rate increases is about 12%-14%. According to them the health care bill will add an additional 2.5%. So yes “Obamacare” is increasing the cost of health insurance, but only by a fraction of what the private companies were going to increase it anyway.
Here are a couple of my thoughts on fixing the economy.
As oa says provide universal single payer health-care. When everyone knows that they can pursue other carriers without the worry that they won’t be able to afford or even buy health insurance at any price they will start new businesses by the droves. This will create new revenue for the government and expand the pie for private industry. It will also open up jobs in schools, state and local government, and in private industry. Some of those jobs may be eliminated but many will be filled by people who are currently without a job or looking to advance their career.
For the financial sector re-introduce stringent usury laws and create a place where ordinary people can save some money that isn’t directly tied to Wall Street. This could be done by creating an individual savings account system where each person could have one account for a maximum of maybe $100,000 that paid at least 3% interest, more if interest rates go up. These accounts would be insured by FDIC. Banks are now getting money basically for free and charging interest of 5% and up to about 30% on credit card loans; they can afford this sort of account because it would help keep cash in the banking system. It would also create a system that would help regulate the shenanigans on Wall Street because people would have somewhere else to put their savings if they felt the markets were out of whack.
I know this is a tangent to a tangent but when is NPR going to stop giving out a stock market update every hour. It is completely useless information. It is more useless than giving sports scores for games that haven’t ended.
If what is happening in the market is very important to you that information is available accurately to the second. If you are one of the people that they say you should be, a long-term investor (sucker), then you have no need to know on an hourly basis.
It is either an out-dated feature that the higher-ups haven’t realized should be cut or it is simply propaganda to keep the schmucks feeling like they are the investor class, that they are the shareholders that business is so interested in taking care of when in fact they are the poor fools being bled dry by leaches.
But I like sports scores before the game has ended.
Okay, gotta chime in on something OA said. The Reagan defense build up. I don’t know how old you are OA, but I served during the Carter/Reagan years. After Carters pathetic bungling of the Iranian Hostage Crisis the USSR considered the US a weal kneed paper tiger. They intensified their build up and the push outwards. Maintaining the staus quo was getting more and more expensive, arms talks were going no where. It took crazy Ronny Reagan to end it. Yes, he rebuilt the military and boosted the abysmal Carter economy too (you probably don’t remember Carters “Misery Index” or interest rates on home mortgages in the 20%+ area). Yes, it cost a lot, but it ended the USSR in a few years and for a long time we could breath a sigh of relief that the missiles weren’t 40 minutes away and closing.
So give him the credit he deserves. Our kids today never heard of the Cold War, communists or nuclear winter. They don’t do shelter drills in school. Ending that 50 year war was a god thing.
Knuck, I just don’t see how single payer will lower costs and create jobs. It just doesn’t make sense. I’m listening, convince me.
I also fail to see how a legally mandated interest fee on those savings accounts you mentioned is wise or even legal. More artificial price supports are going to fix the problem artificial price supports created? Again, convince me.
Bret, start asking everyone you know and some you don’t about how they get their health insurance. Which family member(s) have it, where they work, and whether they are working a particular job largely for the health insurance. Ask people what they would do if they didn’t have to worry about health insurance.
You will be surprised to find out how many people are not living their dreams for that one reason.
Mandated bank accounts? We already have a system set up in which the taxpayer pays people to send their retirement savings to Wall Street through IRA’s and the like. We are giving banks basically free money (0% interest) which they loan out at high rates of interest. Think about it. Would you take a million dollars that you could loan out at 5 or 6% if you were told that you had to pay a return of 3%. I would.
Mervel, if you want to hear the sports scores you can go to many other places than NPR and hear then more regularly than once an hour.
Meanwhile NPR could use that time to report on labor issues, or unemployment statistics.
Single payer would absolutely reduce costs in a given year compared to satus quo. There is just no doubt about that. It is undeniable. Now, it is equally undeniable that, quality of care would most probably suffer. However more people would have coverage. Finally, I guess if you got your you don’t want any change, right?
Pogo said, “We have met the enemy and the enemy is us.”
Everything we don’t like about government we have voted for – on average about 51% of us have voted for what we have.
Health insurance costs keep rising because we demand more and more from the health care industry. You pay for what you want. We just don’t like paying for it.
There was a time (back when I had my first job) when the minimum wage was 50 cents an hour. Now it is much higher but is the minimum wage worth more than when it was 50 cents? I doubt it.
A major problem we have in this country is how it costs so much to be poor. Much of this is the result of the never ending additions to what we say we absolutely need. Bigger house, more toys for adults, a college education, preferably with a Masters or a PHD, bigger and bigger TVs, smaller and smaller cell phones that do more and more things we think we really need, longer vacations, early retirement, etc., etc. etc.
Are we happy yet?
When will we ever be when all we are doing is chasing our own tails while demanding the tail to stop moving.
Maybe it has. And maybe we have run into you know what.
Zeke has a good point.
Most people in the US DO have health insurance either through their employer or through Medicaid or Medicare. So when you say to them all of your insurance is going to get worse and more much more expensive to pay for this new system; well you may have a political problem.
But this may not be the case, but if it is health care reform will not last.
Knuck- That’s a completely irrelevant point. “Living their dreams” is not a right in this country. In fact, I hope you misspoke somehow and can come up with some sort of coherent defense because that one is juvenile. Please, give me something other than “They can’t do their own thing man…” And I don’t mean that to sound nasty or anything, but that’s what springs to mind when I read the “living their dreams argument.
I would also ask for a better defense of artificial price supports and limits than “we already do it”.
I’m looking for reasons to rethink my positions that make sense.
Zeke- PROOF, give me proof of what you claim. I haven’t seen anything yet that comes close to convincing me. Please, I really am listening, convince me.
Bret4207, clearly if there was only one entity to cover those currently covered, instead of the huge number of companies now, costs would be reduced. Advertising alone for customers would shrink the costs even if the single entity was for profit. That should not have to be explained. Now single payer, not for profit has been shown by so many studies to be more cost effective than the current system it is unrefutable. On the other hand it has also been shown that quality of care would suffer. I get the feeling; you would be unwilling to accept any PROOF and that your health care is already taken care of(you will say you earned it, fine)
Hi Zeke,
I don’t think it is clear. However I understand that point you are making. The fact is no one really has this figured out both sides make good points. Usually when the government in the US does something the costs rise exponentially and the quality is very average. But this is not always the case. We already have single payer health insurance for older Americans it is called medicare. Medicare is a very important social program but indeed its costs are very high. If we can’t do medicare for older people without massive cost increases and budget problems, I just don’t see how it will be any better for covering the whole population?
If the only game in town is medicare. And the payouts are what they currently are. Costs will be reduced. No doubt about it. However I willingly admit that care will suffer if for no other obvious reason, Docs will exit the profession or go to a different country. Does the gov’t screw things up, sure, there is fraud waste and abuse. Is there profiterring and fraud waste and abuse in private insurance, for sure. I just think it is clear if we covered who was covered before the bill passes last summer via medicare rather than any private insurance costs would have been reduced and to some extent would have been less even if more people were added to the rolls.
Also, if our media put resources into covering government the way they cover non-mosque mosque controversies, people might be a little better informed and pressure their representatives to do something about it and we’d finally have a democracy that….
Look! Over there! Bristol Palin’s dancing!
Consider right now we already have a shortage of medical care in addition we have many doctors who already do not accept medicaid. So what happens when private doctors say we don’t take government health insurance at all or simply leave the field and the area; it won’t matter how good or bad my single payer insurance is if there is no place to use it in St. Lawrence County.
Not to be to conspiratorial but if one wanted to de-populate rural areas that would be a good way, just remove all of the health care making it only available in cities and urban areas.
Bret, when I say “living their dreams” I mean that people want to work hard at something they love to do and be paid enough to live a decent life, put their kids through school and leave a modest inheritance.
I don’t even try to convince you with arguments because you are unconvinceable. I don’t have the time. I have to work to pay the $3,500 a year it costs me (15% more next year) for health insurance with a $1,500 deductible, $30 co-pay, no prescription coverage, no dental care, and no eye care coverage. Never mind my bills for 2 kids in college, one of whom doesn’t have health insurance. And forget about a pension or retirement fund, I’m too busy paying for overpriced higher ed. So enjoy your pension and your health insurance; I’ve got to go back to work.
Zeke, clearly if there was nation wide competition between insurance plans costs would be lower. We have laws barring that now, why? Instead of 800 plans e could have 150 which would result in much larger groups and lower costs, or at least that the way any group coverage I’ve had has worked.
To me, using your example, what I see is a giagundous version of Medicare. Like Mervel said, that ain’t such a great system. But, I don’t have a better answer other than people getting jobs, cutting taxes so they can afford their own coverage and getting Gov’t out of the way as much as possible. I have zero faith in the “one big farm/factory/plan” idea. It didn’t work in Russia or anywhere else, what makes anyone think it’ll work here where we’re masters at screwing up simple ideas?
Knuck, that’s a new low for you. Poor Knuck. Life’s tough, then it gets tougher and then you die. Live with it. Too bad you’re not me, sitting here in my palatial estate, sipping 200 year old brandy and smoking the worlds finest cigars while my personal trainer massages my feet and my private secretary types these posts out as I dictate them. Wait…..that’s not me, that’s George Soros! Shoot! I must the other guy with sheep crap on his pants and the welding scars on his hands, driving the 97 Ford, paying for his health insurance every check, with no dental or eye glasses and with 2 kids with no insurance and college bills and currently a bank account that’s $197.84 overdrawn. Gee, sound familiar? So stop whining. You chose your path in life and it’s not up to anyone to come rescue you or me. We have what we have and worrying about what someone else does or doesn’t have isn’t gonna change a thing. Your health insurance WILL go up, whether it’s Obamacare or Single Payer it’s not going to drop. That’s simply a fantasy. The only way it’ll drop is if there’s nationwide competition or if the Gov’t slaps price controls on everything, and with single payer that would be their only option to avoid bankrupting themselves overnight. Then we’ll have the worst medical care in the world because any doctor in the world worth a hoot isn’t going to work for peanuts. Yeah, there’s a plan.