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Small government, big government: We need better government

BY DANIEL TAIBLESON | MAY 11, 2012 6:30 AM

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It is perfectly fine for ideology to play a role in the debate over what government sets out to do, but once that debate ends and it comes time to make policy, data should pave the way forward.

I have spent much of the space I have been afforded — for which I am very grateful — over the past few months pushing against the often penny-wise, pound-foolish nature of using tax cuts to solve every single economic problem our country faces. The reason I have so persistently pushed against the idea of tax-cuts as a panacea stems from the fact I am a proponent of policies that make government more efficient and effective.

There are two reasons I fixate so narrowly on the ideas of efficiency and effectiveness rather than paying any credence to how "big" or "small" a policy is liable to make government.

First, the concepts of "big government" and "small government" have little, if anything, to do with making government better. Second, unlike "big government" and "small government" (which are highly subjective terms), we can actually reliably quantify whether a policy is likely to make government more efficient or effective.

I admit that determining what policies will actually make government more effective and efficient is daunting. It requires studying history and understanding what is politically feasible. More importantly, it requires undertaking the often slow and frustrating process of weighing the respective costs and benefits of a multitude of policies against one another.

Up to this point, I have spent most of my time discussing policies that are ineffective and inefficient. In fact, my entire column Thursday was intended to put a bow on my campaign against imprudent anti-tax economic theories and policies.

However, I feel that I have failed to do enough to discuss alternatives. That said, here we go.

Right now, all of the Bush tax cuts are still on the books. They are slated to phase out soon, but Republicans will likely fight tooth and nail to extend them because they warn that tax increases will dampen economic growth.

No doubt this is true. The tax cuts were not accompanied by spending cuts, putting them squarely in the realm of classic Keynesian expansionary economic policy. As far expansionary policy goes however, the tax cuts (38 percent of which benefited the top 1 percent of income earners) are notably inefficient.

In their first 10 years, the tax cuts cost around $250 billion a year. According to Mark Zandy's testimony before Congress, every dollar we spent on these tax cuts increased GDP by around $0.31. This means the tax cuts provide us a $75.5 billion economic boost each year.

That established, here are three ways we can make government either more effective or more efficient by simply redirecting money from one expansionary policy to another.

According the Congressional Budget Office's analysis, infrastructure spending increases GDP by $0.5 to $1.2 per dollar in budgetary cost. This means that in the worst-case scenario, we could reduce the debt by $95 billion a year without depressing GDP by letting the tax cuts end and reinvesting some of those dollars in infrastructure spending.

That same CBO analysis also found that aid to states to prevent layoffs and service cuts increases GDP by $0.4 to $1.1 per dollar in budgetary cost. In the worst-case scenario, we could expect U.S. GDP to grow by an additional $25 billion by turning all of the tax cuts into aid to states. This also has the added benefit of preventing states from laying off teachers, police officers, and other first responders.

Back to Zandy's Congressional testimony; he found that each additional budgetary dollar spent on food stamps increases GDP by about $1.73. That means if we shifted less than one-fifth of all the tax cuts to additional food aid for the poor, we could decrease the annual debt by $200 billion and U.S. GDP growth would remain about the same.

None of what I just said concerns bigness, smallness, fairness, or morality. These are just numbers, and they speak for themselves.

There is considerable room for ideologically founded debates over what government should and should not do. But once that ideological battle has been waged and it comes time to construct policy, data should dictate the path going forward. Whether it is alleviating poverty, stimulating economic growth, or improving education, the policies that most directly and efficiently achieve those things should be given preference over all others.


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