Last year, I reported that the United States fell from sixth to eighth place – behind Canada – in the Heritage Foundation/Wall Street Journal’s 2010 Index of Economic Freedom. Now, we’ve fallen further. In the just-released 2011 Index, the United States is in ninth place. That’s behind Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Ireland and Denmark.
The biggest reason for the continued slide? Spending as a percentage of gross domestic product. (State and local spending is not counted.)
The debt picture is dismal, too. We are heading into Greece’s territory.
Are we doomed? Not necessarily. Economist David R. Henderson points out that our neighbors to the north faced a similar crisis. In 1994, the debt Canada owed to investors was 67 percent of GDP. Today, it’s less than 30 percent.
What did Canada do? It cut spending from 17.5 percent of GDP to 11.3 percent.
This wasn’t merely a cut in the growth of spending, a favorite trick of congressional committees. These were actual reductions in absolute spending.
“If a cabinet minister wanted a smaller cut in one program, he had to come up with a bigger cut in another program,” writes Henderson in “Canada’s Budget Triumph,” published by the Mercatus Center. All but one of Canada’s 22 federal departments experienced real cuts in spending. While Canada raised taxes slightly, spending was cut six to seven times more.
These supposedly painful cuts didn’t cause terrible pain. In fact, there was much more gain than pain. Unemployment dropped, the economy boomed, and the Canadian dollar – then worth about 71 cents U.S. – today is about equal to the American dollar.
If Canada can do it, we can, too. But the signs aren’t good. New Speaker John Boehner, leader of the Republicans who now control the House, says he wants to cut spending. When he was sworn in last week, he declared: “Our spending has caught up with us. … No longer can we kick the can down the road.”
But when NBC anchorman Brian Williams asked him to name a program “we could do without,” he said, “I don’t think I have one off the top of my head.”
Give me a break! You mean to tell me the Republican leader in the House doesn’t already know what he wants to cut? I don’t know which is worse – that he doesn’t have a list or that he won’t talk about it in public.
The Republicans say they’ll start by cutting $100 billion, but let’s put that in perspective. The budget is close to $4 trillion. So $100 billion is just 2.5 percent. That’s shooting too low. Firms in the private sector make cuts like that all the time. It’s considered good business – pruning away deadwood.
GOP leaders say the source of their short-run cuts will be discretionary non-security spending. They foolishly exclude entitlement spending, which Congress puts on autopilot, and all spending for national and homeland security (whether it’s necessary or not). That leaves only $520 billion.
So even if the Republicans managed to cut all discretionary non-security spending (which is not what they plan), the deficit would still be $747 billion. (The deficit is now projected to be $1.267 trillion.)
This is a revolution? Republicans will have to learn that there is no budget line labeled “waste, fraud, abuse.” If they are serious about cutting government, they will ax entire programs, departments and missions.
I’m not confident they have it in them. I hope I’m wrong, but they’re politicians, after all. I’m reminded of Spencer Abraham. When he was a senator, he sponsored a bill to abolish the Department of Energy. But then George W. Bush appointed him to head the department. Suddenly, he saw the importance of the Energy Department. “I changed my mind after Congress passed legislation in 2000 reorganizing the department,” Abraham explained to his former Senate colleagues. Yeah, yeah.
That’s why I fear that the new Congress will soon remind me of that line by the Who: “Meet the new boss, same as the old boss.”