Front and Center

Politics, society, and other random randomness

Tag Archives: Government spending

The Left in Canada Led the Country out of Economic Doldrums; Maybe the Left in the US Can Take Note

When looking at how the ongoing debt negotiations have gone back and forth for weeks, there is one thing that my friends on the Left can’t deny–that while the President and the liberal members of congress have repeatedly criticized the plans put forth by Republicans, they haven’t put forward a plan of their own. Further, the notion of making cuts to entitlement programs (even though most of the cuts aren’t really cuts) causes the Left to jump up and down and talk about how much the cuts are going to negatively affect Li’l Jimmy and how it’s only fair if we increase taxes on high income earners.

(Sidenote: “Li’l Jimmy” is a fictitious character being used as part of a WWE storyline each week by wrestler R-Truth. I and my other wrestling fan friends who also talk politics have found “Li’l Jimmy” to be useful in these conversations.)

Fred Barnes in a Wall Street Journal piece talks about how Canada made it’s way out of financial crisis and has arguably created a stronger economy than the US. The irony? It was the Left in Canada that led the reversal, and they did it through spending cuts, not tax increases:

Mr. Chretien and his finance minister, Paul Martin, took decisive action. “Canadians have told us that they want the deficit brought down by reducing government spending, not by raising taxes, and we agree,” Mr. Martin said. The new administration slashed spending. Unemployment benefits were cut by nearly 40%. The ratio of spending cuts to tax increases was nearly 7-to-1. Federal employment was reduced by 14%. Canada’s national railway and air-traffic-control system were privatized.

The economy rebounded. Between 1995 and 1998, a $36.6 billion deficit turned into a $3 billion surplus. Canada’s debt-to-GDP ratio was cut in half in a decade. Canada now has faster economic growth than America (3.3% in 2010, compared to 2.9% in the U.S.), a lower jobless rate (7.2% in June, when the U.S. rate was 9.2%), a deficit-to-GDP ratio that’s a quarter of ours, and a stronger dollar.

What’s most remarkable about the Canadian turnaround: It was led by liberals. Mr. Chretien and Mr. Martin were leaders of the Liberal Party. Yet they responded to the clear wishes of Canadians and, to the surprise of the political class, shifted to the right. Or to the center, the two leaders would say.

I wonder what the likelihood of this happening in the US would be.

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When Spending Cuts Aren’t Really Spending Cuts (or, “They Think We’re Stupid”)

In the ongoing battle between the parties to negotiate a debt-limit increase, there has been much talk of spending cuts.  Republicans are strongly taking a stand on cutting spending but no new taxes.  Democrats are open to spending cuts but are looking for ways to increase revenue to increasing taxes or cutting tax breaks.  But people won’t be surprised to know that both sides are choosing not to be up front with we the people.

When we the people look at a budget, we base it on what we have coming in at the time.  We then decide where we will spend those funds.  We won’t get into the notion that if we were out of money and needed more, if we did as the government does sometimes and print our own, we’d be hauled off to jail rather quickly.  In general, most people don’t have the luxury of just going out and getting loan after loan while continuing to spend above their means.

Not so with the government.

I got a call from a good friend of mine who was watching a show on CNBC.  He said a guy was on talking about how spending cuts weren’t spending cuts and how he’d remembered hearing it from me months ago.  You see, the government doesn’t operate the way normal people do.  Matter of fact, the government doesn’t even operate like a good company does.  And here is where they pull the wool over our eyes.  Let me explain using an example.

When Joe Public is doing a budget, he bases it off of how much he has coming in, and how much he as going out.  If he has more going out than coming in, he has no choice but to cut spending.  If he decides that he must make a spending cut, typically its going to result in him spending an amount less than what he is spending now.  So, where he may be spending $1,000 per month now, a budget cut may result in spending $950 per month next year.  That is a budget cut.

Now, the government doesn’t do that.  The government uses a nice little trick called baseline budgeting.  The government has already planned ahead as to what spending increases will be.  For example, while the budget for program A is $1,000 for 2011, they have already planned that in 2012 it will be $1,100, for 2013 it will be $1,200, and so on (sidenote:  the government tends to project increases in terms of percentages.  I’m using real numbers so I don’t have to use a calculator.).  So when there is talk of a spending cut, it is not like Joe Public, who takes his spending below what he was spending before.  Instead the government says, “well, instead of spending $1,100 in 2012, we’ll spend $1,050, and in 2013 we’ll spend $1,100.”  As you can see, overall spending still goes up, just not as fast.

This is why complaints about spending cuts have to be taken with a grain of salt.  Politicians will make things seem like a program is going to die due to budget cuts, but that is making the assumption that the reduced spending increase won’t be enough.  They also assume (correctly) that the majority of the people have no idea of how they are pulling the wool over their eyes.  If there is to be a serious, authentic discussion about spending cuts, then lets see some serious, authentic reductions in actual spending!

Politicians aren’t serious about fixing problems

President Obama has installed a Debt Commission in order to come up with ways to reduce the deficit.  The report of the commission is due in December.  Everyone knows going into this that there will be some hard decisions that will have to be made, and not everyone is going to be happy.

Wednesday, an initial copy of the Commission’s report was released.  In it they suggested many ways to get the deficit down.  Among them:

As expected, folks on both sides have gone nuts.  The idea is, yes cut the money–but not for the folks that I support!

I’ve linked to a breakdown, as done by radio host Neal Boortz.  Some don’t like him, but read it anyway, since he breaks down each of the suggestions:
Let the Games Begin.
As mentioned, the negative responses weren’t slow in coming:
Response to deficit plan–tepid to “unacceptable”.
They just aren’t serious about fixing things.