The Case Against Despair; It's not impossible to shrink the federal government
By Fred Barnes
The Weekly Standard
November 30, 2007
The safest of all assumptions in Washington is that year after year federal spending will rise. Over the past 25 years, spending increased 84 percent in real, inflation-adjusted terms as the population of the United States rose 30 percent. Spending per capita grew 41 percent. And though President Bush is now trying to curb spending, the federal budget crossed the $2 trillion mark and is likely to exceed $3 trillion during his presidency. That's nothing to brag about.
The relentless rise in spending, unstopped even when Republicans controlled the White House and Congress, has thrown conservatives committed to limited government into despair. Their view, fashionable at the moment, is that nothing can be done to limit spending to any significant degree. It's hopeless. Even conservative voters "aren't that concerned about spending," Ramesh Ponnuru lamented in National Review.
A widely read essay by William Voegeli in the Claremont Review of Books noted that the economic boom of the past quarter-century created the perfect environment for restraining spending. "More people had more money to spend on their own health, education, and welfare, presumably enabling the government to spend less for such purposes," he wrote. But rather than recede, the public sector grew faster than the private. Conservatives blew their best chance.
While pessimism is understandable, the truth is that spending can be curbed significantly. Discretionary spending at least can be sharply controlled. The strategy is really quite simple: Repeat what worked in the past. I don't pretend that success would be easy, but it's hardly impossible.
Entitlements such as Social Security and Medicare are another story. They are on a spending path to bankruptcy. Putting them on a more sustainable course requires a different strategy. But it's also a simple one: Have individuals (and not the government) decide how to spend their retirement and health care funds. In other words, individual choice is the answer. There's a political advantage in this, namely that Americans tend to like choice.
When was spending actually curbed? In the case of discretionary spending, it happened when Ronald Reagan was president in the 1980s and then when Newt Gingrich was House speaker a decade later. In both cases, the central factor was strong leadership. When that exists--and probably only when that exists--spending can be curbed.
Under Reagan, discretionary spending fell (in real dollars) in 1982 after he pushed a package of spending cuts through a Democratic Congress. It dropped again in 1987 as his military buildup began to ebb. Even nondefense spending dipped in 1986 and 1987.
Republican Tom Coburn, the Senate's leading hawk on spending, believes presidential leadership is the key. "I don't think a president ever loses" if he takes the case of reducing spending to the American people. "We could really change Congress [on spending] with a strong president who really wanted to do it," Coburn told me. Maybe so.
Reagan made one big mistake on spending. He appointed a "bipartisan commission" to decide how to bail out Social Security in 1983. The commission's remedy was to raise taxes and increase the age of eligibility but not to hold down the growth of benefits or impose any reforms. The lesson here is that bipartisan commissions are to be avoided if spending restraint is the goal.
When Republicans captured Congress in 1994, Gingrich and his allies waged a vigorous, if brief, war on spending. "We had enormous discipline," says Dick Armey, then majority leader. Gingrich made Bob Livingston the chairman of the House Appropriations Committee with strict orders to curb spending.
The result: Nondefense discretionary spending decreased in real terms in 1996 and grew only slightly for the next two years. "As the years moved forward," Armey told me, "the appropriators chafed under that discipline." And it finally broke down. But is spending restraint hopeless? Not at all, Armey insists.
Two other points. Divided government--Congress controlled by one party, the White House by the other--is a boon to limiting spending. Going back a half century, a study by William Niskanen of the Cato Institute found that "the only two long periods of fiscal restraint were the Eisenhower and Clinton administration, during both of which the opposition party controlled Congress."
The easiest spending to cut, it turns out, is defense spending. Once the Cold War ended, military spending was downsized from $320 billion in 1991 (in inflation-adjusted dollars) to $266 billion in 1996. "The reductions occurred despite the parochial interests of the members of Congress who have defense contractors and military bases in their districts," says Cato's expert on spending and taxes, Chris Edwards.
Now let's turn to entitlements, where making the case for slowing the growth of spending, much less cutting it, gets considerably harder. Recent experience is not encouraging. President Bush made a valiant effort in 2005 to reform Social Security by creating personal investment accounts. He failed miserably. Few conservatives supported him.
But partial privatization in the form of voluntary investment accounts is an inescapable element in any scheme to keep Social Security solvent. Those who choose such accounts must agree to a smaller Social Security benefit when they retire. But most of them should come out well ahead financially, given the consistent rise of the stock market over time.
Polling on investment accounts is mixed, but more favorable than not. A Gallup Poll in 2005, for example, found that 53 percent of adults would choose the investment option. My guess is that the popularity of these accounts will grow significantly since younger people, most with 401(k)s, have more experience in investing and are likely to prefer to channel some of their payroll tax into the market. Eventually, investment accounts should be politically marketable, though the president failed to sell the idea to Congress or the public.
Personal accounts in one form or another also make sense for Medicare and Medicaid. Individuals could be given a tax credit or a lump sum and allowed to buy their own health insurance. Any money left over could be used for uncovered medical expenses, giving consumers an incentive to shop for medical services. The details vary from one proposal to another, but the general approach is clear.
And the larger point would be to get insurance companies to compete, both on price and breadth of benefits, for Medicare and Medicaid business. We know how competition among providers has worked with the new Medicare prescription drug benefit. Average fees are far less than expected and the program came in $4 billion under budget in 2007.
Polling on individual medical accounts is skimpy. But health savings accounts (HSA's) are increasingly used in the private sector. I suspect a version of HSA's would be popular with Medicare and Medicaid beneficiaries, too.
Serious reform of entitlements with cost savings in mind may be too difficult to achieve in our current political climate. But the political climate will change. It always does. Meanwhile, we don't have to wait to curb discretionary spending. It could happen this year, now that President Bush has, at long last, jumped on the limited-government bandwagon.
The struggle to curb federal spending is never ending. It's often a thankless task. But if conservatives don't take up the fight, spending will be a lot less limited. Then there really will be reason to despair.
Senator Tom Coburn
Subcommittee on Federal Financial Management, Government Information, and International Security
340 Dirksen Senate Office Building Washington, DC 20510
Phone: 202-224-2254 Fax: 202-228-3796
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