Economic Compromise Or Creativity
SEARCH BLOG: ECONOMY.
Econbrowser is a blog written by a "liberal" economist, Menzie Chinn, from the University of Wisconsin Madison and a somewhat "conservative" economist, James D. Hamilton, from the University of California San Diego.
Yesterday's post was about...
Finding compromise
President Obama won a second term in office yesterday, receiving 50.3% of the popular vote But the Republicans held control of the House of Representatives and Americans remain deeply divided. Historically, the party in control of the White House loses some congressional seats in the midterm elections. That means that any legislation passed into law over the next two years, and likely the next four years, is going to have to be agreed to by both a Democratic President and a Republican House.
Perhaps the Democrats and Republicans will face up to the fact that, for better or worse, we're stuck rowing the same boat together for the foreseeable future, so it's time to strike a Grand Compromise setting the United States' long-run fiscal house in order. Any objective observer can see that this calls for both tax increases and entitlement reform. Perhaps some leaders on both sides will emerge from the embers left by the election wars to carry such a vision into action. But based on what I have seen from the key players so far, I personally am not expecting to see that happen. [more]This is exactly the kind of thinking that boxes us in and prevents addressing real problem sources. My comment:
Somehow, the idea that there are only two aspects to the budget issue has blocked other thinking. Raise revenue or cut spending. It is a problem of framing.
When you believe that you can only tax more or cut spending you fail to get to root cause for many of the government programs, to wit: the programs are bloated, inefficient, and wasteful.
Now the simple view is that when you simply cut spending you fix the bloated, inefficient, and wasteful aspects of these programs. That would be incorrect. You may reduce the scale of the issues, but you have not addressed the root causes... and you deliver less as a result.
Medicare studies show that there is somewhere between 10-20% waste/fraud built in. Presume it is 20% and you cut spending by 10%. You haven't reduced the waste and fraud relative to the total spending. You've just reduced what the program delivers. Cut the waste and fraud in half and you can cut spending by 10%, not increase revenues, and deliver the same amount of services.
So, while those who say the number show a need for $X tax increases or $Y spending cuts may be technically correct, they are process/product incorrect.
I would venture a guess that at least 10%, probably more, of the federal spending is waste/fraud related and could be fixed. It might take some creativity not necessarily endemic in the government to actually accomplish this mighty feat of discipline, but it could be done without needless pain.Strangely, no one seems interested in real problem solving. Cut spending or raise taxes or both... just don't fix the underlying problem. That's like pouring perfume on a corpse to hide the stench.
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