There has been considerable discussion this election year about the economic consequences of fiscal restraint. Some economists believe that the economic recovery has been hampered by government cutbacks in particular spending programs. A recent article in the Wall Street Journal noted that as state and local governments “get a handle on their finances” its “good news for tomorrow’s economy” but “straining today’s recovery.”
Downsizing institutions, public or private, is costly because it takes time for resources to be reallocated to other sectors of the economy. However, wasteful government spending diverts resources from other more valuable uses and does not stimulate the economy. There is no sensible economic argument, even in a weak economy, for delaying cuts in duplicative, ineffective or wasteful government programs.
President Obama’s jobs bill includes $35 billion of Federal aid for state and local governments to be used for teachers, police and firefighters. Voters seem more likely to support this policy because they see the tangible benefits from this focused spending. However, the President’s support will dwindle if the pay and benefits of government workers seem excessive for the typical voter. For example, a recent story in the Chicago Sun Times indicated that the average pay for a unionized Chicago firefighter is about $104,000 per year while the average full-time worker in Chicago earns $49,000 per year (according to the Bureau of Labor Statistics).
Chicago firefighters receive costly collectively bargained perks and retirement and health care benefits. For example, firefighters in Chicago are awarded thirteen paid holidays and receive double time if they work on any holiday including Flag Day, both Lincoln’s and Washington’s birthdays, and Casimir Pulaski Day (March 4). Democratic mayor Rahm Emmanuel is currently negotiating for limits on non-wage benefits in a new contract with the firefighters’ union (whose current five-year agreement ends in a few days). Emmanuel is at the bargaining table with the same union leaders who helped elect him. He knows that support for President Obama’s $35 billion spending package for teachers, police and firefighters will evaporate if voters believe that this money is not being spent wisely.
There are a number of areas where there is some bi-partisan support for government spending reductions. The GAO recently released a report detailing $100 billion in possible savings by eliminating duplicative programs. Senators Tom Coburn (R-OK) and Mark Udall (D-Co) and Representatives from both parties introduced legislation to eliminate duplicative government programs. These cuts in spending will help the economy, even in the short run, and free up resources for more valuable projects.
Even wasteful government spending is difficult to eliminate because of vested interest in the status quo and the political power of government unions and contractors. Al Gore, Jr. tried to reinvent government and Bill Clinton said the era of big government is over. But, Ronald Reagan knew how difficult it is to achieve fiscal restraint. He said: “No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!”
Dyed-in-the-wool Keynesians believe all government spending stimulates the economy, even a holiday honoring Casimir Pulaski or an expensive junket to Las Vegas for GSA employees. Keynesian economists who advocate government spending for its own sake are their own worst enemies. Taxpayers will lose confidence in government solutions to economic problems if fiscal restraint is dismissed even as journalists report on government spending excesses.