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The presidential candidates are being maddeningly vague about how they would go about trimming federal spending. I suppose they want to keep their options open and not make promises they may end up breaking. But to speed up U.S. economic growth, federal debt must be reduced, and to do that spending must be reined in. And it isn’t going to be easy. Where to start? A lot of the focus is on Social Security and Medicare, since these programs, along with Medicaid, account for such a large chunk of Uncle Sam’s expenditures. While reforms to these programs are undoubtedly in the cards, it probably is unwise to count the spending-cut chickens at this point because (1) they aren’t hatched, and (2) baby boomers are retiring in droves, and retired people tend to need more health care. A recent cover story in Time magazine detailed the various ways that ordinary citizens benefit from government largesse. The author, Michael Grunwald, showed how he and his family ate food and put on clothes that were subsidized by federal farm supports, for example. And his income tax bill is reduced by such items as mortgage interest and exemptions for family members and childcare. Most Americans, Grunwald writes, “are makers and takers — proud of our making, blind to our taking.” He adds: “The problem is that we pay in $2.5 trillion and pay out $3.8 trillion. And those trillions of dollars don’t all go to undeserving moochers, except insofar as we’re all undeserving moochers.” In short, vested interests will howl loud and long if their seats at the government banquet are downsized or taken away. That’s why we need leadership, meaning politicians — beginning with the president, yes, but including members of Congress, governors, mayors, the works — to help us see how our pain of short-term loss contributes to the longer-term greater good. The benefits are sizable. In “The 4% Solution,” Kevin Hassett estimates “that a fiscal consolidation through lower spending could easily increase medium-term growth by about 1% a year. This would be a major increase.” Major, indeed, and a big step toward invigorating the economy for the advantage of all.
2012 Economic Growth Fellow
John Prestbo is retired as editor and executive director of Dow Jones Indexes. Previously he was markets editor at The Wall Street Journal. He has co-authored or edited several books over the past 30 years. The most recent is “The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average,” published in 1999 by Dow Jones Indexes. His column, Indexed Investor, appears on the highly regarded “MarketWatch” business and finance website. He received his bachelor's and master's degrees from Northwestern University.Full Bio
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