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I don’t care about whether we balance the budget (federally or state or locally). Is it better to live in a world where the President and Congress run a $0 deficit, but are spending $4 trillion of other people’s money every year? Or is it better to live in a world where the President and Congress run a $500 billion annual deficit but are only spending $1 trillion of other people’s money every year?

In other words, when did it become taboo, partisan, and “hackish” to ask your government to be more prudent in its spending? When did it become taboo to ask your government to understand that tradeoffs are everywhere? When did it become taboo to ask your government to recognize that if you want to spend billions on health care reform, then you must spend billions less on some other project? When did it become taboo to ask your government to recognize that if you want every American to attend college for free or low tuition, then you can’t spend $600 billion per year on National Defense.

People rarely ask me to be more forthright in what the “right” amount of government spending is. I never see anyone deal with such questions seriously. For me, 10% would be the limit. So, if our economy is $14 trillion in size, then government should not spend more than 10% of that. For others, maybe that number is 20% or 25%. But the way we proceed in this country is that there is no benchmark … it’s just a Christmas party every day in DC and the state capitals – if the political class thinks something is important, we simply spend and have it.

That lunacy doesn’t work in your family. That lunacy was rightly criticized when it was Wall Streeters playing with other people’s money. But that lunacy is celebrated when the government overlords have some wonderful new idea. What is enough? For me, even though I would sign up to live in a world where the number was 0%, the number I would tolerate if I had a choice would be 10%.  Before answering, I’d remind you that directly spending is not the only way the government “spends” your resources. Mandating safety via consumer product protections and the FDA is costly both monetarily and in risk terms (it is not clear we are safer because the FDA is around, or because we have seat belts, and both of these things raise costs to us, althought they are not thought of as taxes). Mandating environmental improvements is costly and not direclty captured in our tax rolls. Implicitly backing up bad investment and hiring decisions is costly and not directly captured in our tax rolls ex ante (check out the Pension Benefit Guarantee Corporation, or think back to what happened with Fannie, Freddie and AIG). Imposing trade restrictions and tariffs is costly and does not get captured in our tax rolls. Seriously, if you were to add up the total costs of the government in your life, I am certain it would exceed over 50% of your earnings. The explicit average take from me, a middle income American, is roughly 33%, and at the margin much more.

So, to all of you Conservatives and Liberals and other politically inclined folks out there – what is the right amount? And why is it so hard to deal with the fact that prudence is valued by most people in this country?  Why can you argue with a straight face that prudence is important in your personal life but not in the political realm? Remember, if Mike and Joe and Jane cannot afford to do something individually, then the three of them together cannot afford to do it either.

One Response to “When Did Saying This Become the Equivalent of Beating Your Child in Public?”

  1. Harry says:

    The WSJ, under Robert Bartley’s tutelage, published graphs of federal government spending, which showed that when you went over 18%-19%, growth slowed, tax revenues dropped, and our political economy went into a maelstrom called stagflation.

    Although I know that the future never is exactly the same as the past, much of today reminds me of 1978-1981. Jimmy Carter was wearing a sweater, telling us of our malaise. We created the Department of Energy, and if you were in Maryland you had gas lines. Interest rates were high, and rising, and one could make some good money if you had big travel expenses, put your cash into the bank, and paid off your American Express card at the end of the month, maybe $500 on the float. Leonid Brezhnev was in his acendancy, and Jimmy Carter was admonishing us for an inordinate fear of communism. Federal spending rose to 24% of GDP by 1981, in part because our country was declining.

    Ten percent would be wonderful, but I’d settle for 17%, assuming that Pennsylvania took just 2.8%. I’m waiting for a 23% VAT, though, which will consume my after-tax dollars quickly, so I can live like a Swede. What a big treat.

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