ECONOMIC MISCONCEPTIONS #4 -- WHERE TO CUT SPENDING

Most conservatives express the opinion that government should cut spending. But what should be cut and how big do the cuts need to be? The most common opinion is to cut foreign aid. The areas in which cuts are least preferred include education, social security and medicare.

The chart below shows the annual federal spending by category in comparison with the federal deficit (i.e., *the projected average annual deficit over the next five years). What I conclude from this chart is that the complete elimination of foreign aid will do little to help trim the deficit. In order to eliminate the annual deficit we must address the major spending categories of social security and medicare/medicaid--none of which, unlike defense, are legitimate government activities as enumerated in the Constitution.

As for calls for cutting welfare payments I say, "Amen." However, even an unlikely 50% cut in welfare payments would still leave a huge deficit. And what about cutting Congressional salaries and benefits? Their complete elimination would be like trimming the hog's toenails. And as for eliminating government waste, government and waste are as inseparable as hogs and mud. Discussions of eliminating such waste are themselves a waste (of time and energy).

If we are serious about elimiating the deficit we must call for major reforms to social security and medicare/medicaid. Until we do, no meaningful progress on reducing the deficit (and lowering taxes) can be achieved. As for the contention that we deserve our social security because we paid for it--well, yes and no. While social security taxes are one of the few tax payments that were supposed to be set aside for a specific purpose, in reality Congress has confiscated all such receipts and flushed them into the general tax pot to be spent in any way Congress deemed fit (and all such receipts have been so spent). Deserving or not, there are no, none, nada funds for social security payments. We were duped by Congress and now we must acknowledge and accept this reality and move forward in a way that is best for our children and grandchildren.

Regarding social security, the primary remedy proposed by conservative economists is for social security taxes to be channeled into private savings accounts that the government cannot confiscate and spend (the transition would occur gradually). All funds in these private accounts would be inaccessable to government and so would be virtually guaranteed to be there when the workers who contributed to them finally retire. Systems of private social security accounts have been successfully instituted in Australia and Chile (and many other places).

As for Medicare/Medicaid, the possible solutions are too complicated to be addressed in this space. But make no mistake, meaningful reforms are possible and are currently being proposed in Congress by Paul Ryan and others. However, they need widespread support among conservatives to become reality. We must not oppose these reform proposals because we fear our own benefits may be cut--they must be reduced to some degree in order to salvage our childrens futures while there is still time or we will indeed become known as "the most selfish generation."

As for education, I believe that this responsibility ought to be left to the states primarily because federal education programs discourage school choice and competition and so breed mediocracy.

Have a nice day.

DWD