The public choice economics of spending cuts

This issue deserves more attention and I cover it in my latest NYT column:

Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997. The Liberal Party, headed by Jean Chrétien as prime minister and Paul Martin as finance minister, led most of this shift. Prompted by the financial debacle in Mexico, Canadian leaders had the courage and the foresight to make those spending cuts before a fiscal crisis was upon them. In his book “In the Long Run We’re All Dead: The Canadian Turn to Fiscal Restraint,” Timothy Lewis describes Canada’s move from fiscal irresponsibility to a balanced budget – a history that helps explain why the country has managed the current global recession relatively well.

To be sure, the spending cuts meant fewer government services, most of all for health care, and big cuts in agricultural subsidies. But Canada remained a highly humane society, and American liberals continue to cite it as a beacon of progressive values.

Counterintuitively, the relatively strong Canadian trust in government may have paved the way for government spending cuts, a pattern that also appears in Scandinavia. Citizens were told by their government leadership that such cuts were necessary and, to some extent, they trusted the messenger.

It’s less obvious that the United States can head down the same path, partly because many Americans are so cynical about policy makers. In many ways, this cynicism may be justified, but it is not always helpful, as it lowers trust and impedes useful social bargains.

Forces like the Tea Party movement argue for fiscal conservatism, though it isn’t obvious that they are creating the conditions for success. Over the last year, we have been treated to the spectacle of conservatives defending Medicare against proposed cuts, in large part to curry favor with voters and mobilize sentiment against the Democratic health care plan.

The column also offers up some general reasons for considering spending cuts and not just tax increases.  Maybe Arnold Kling won't like this column, but when I look around the globe for episodes of successful spending restraint I see Canada, Finland, Sweden, and now possibly (probably) Ireland, which is in the midst of fiscal restructuring.  I see change coming from elites and I see relatively left-wing governments (Ireland, admittedly, is harder to classify) which are trusted by their citizens.  The Greek government, in contrast, doesn't operate with the same level of social cohesion and thus it is likely to fail.

I believe the "social trust" scenario for spending cuts is overlooked because it raises the relative status of groups which people who favor spending cuts do not wish to raise.

I wouldn't want to force the view that the United States will or can follow the path of these other nations.  But when there is no other evidence, look to the path of what has been shown to be possible.  This is a neglected point in the debate on fiscal restructuring and it suggests we are not currently on a propitious path.  Right now many fiscal conservatives are looking to voter outrage to drive change and I'm just not sure there is a "there there."  Here's one good post on how much conservatives like government spending.

The Timothy Lewis book, by the way, deserves far more attention than it has received.  Note that the earlier sections of the book are somewhat boring but it picks up in the later parts.

Addendum: Arnold Kling comments.


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