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Who actually controls the force of government? Politicians and interest groups control the American political process. Special-interest groups - i.e. big business, small business, big unions, education, seniors, and a multitude of others - seek favors: tax breaks, subsidies, exclusive legislation, etc. Interest groups give enormous amounts of money to political campaigns and receive gigantic benefits in return.
Two years ago, I proffered that the federal government must cut spending. Excellent academic studies by Harvard economists and researchers at American Enterprise Institute (AEI) concluded that countries that significantly reduced spending, especially cutting government payroll and transfer payments (Social Security, Medicare, Medicaid and ObamaCare), were most successful in reducing government debt and increasing prosperity. [Read: The Right Way to Balance the Budget]
Harmfully, our government did the opposite and continued spending. Over the last two years, our federal government added over $2.5 trillion to our debt. As the experts reasoned, America has a stagnate economy and debilitating unemployment. Presently, President Obama wants to increase taxes by $1.6 trillion over 10 years and continue to increase spending. According to the President, spending cuts will be considered in the future – maybe. Sadly, this is how government reacts to failure. Ignore valid research and double-down on spending and tax increases.
Veronique de Rugy of the Mercatus Center at George Mason University examined the most-recent research by the experts and pleaded, “Give spending cuts a chance.” Updated research from Harvard economists again emphasizes cuts in government payroll and reforming entitlements. In the Washington Examiner, de Rugy writes:
And in a new paper, “Design of Fiscal Adjustments," Harvard economists Alberto Alesina and Silvia Ardagna provide still more new evidence that fiscal consolidation based mostly on the spending side are more likely to lead to a permanent and long-lasting reduction in the debt-to-GDP ratio.
de Rugy explains why cutting payroll and reforming entitlements is so important. Government employees and seniors are gigantic and powerful special-interest groups, and until politicians reduce the money flowing into these special-interest predators, the size of government and debt will expand. Worse, the economy will stagnate...at best. Again, deRugy states:
... successful reforms cut in two areas: social transfers (entitlements in the American context) and the size and pay of the government workforce. If you think about it, this makes sense. These are the types of spending cuts that prove a country is serious about getting its fiscal house in order, because they take on two of the biggest special interests in any country -- government employees and seniors.
And if the country is not serious about cutting spending? By increasing spending the economy falters. deRugy cites an AEI study:
As Kevin Hassett and Andrew Biggs of the American Enterprise Institute have shown, a staggering eight of every 10 attempts by countries to reduce their debt-to-GDP ratios are failures. This means that even in a time of crisis (or especially in a time of crisis), lawmakers prefer politics over solid, pro-growth policy. Countries experiencing fiscal trouble generally get there through years of catering to interest groups and constituencies that favor spending (on both sides of the political aisle), and their fiscal adjustments tend to make too many of these same mistakes. The United States seems poised to do the same.
To the terrible detriment of the economy and American people, President Obama has pandered to the special-interest predators – especially government employees and seniors. By pleasing the likes of AFSCME and AARP, Obama has selected winning politics by ignoring excellent intellectual research and good public policy.