Perhaps the best aspect of this debate between Rep. Paul Ryan (R-WI) on the Right and former Labor Secretary Robert Reich on the Left is the assumption that spending needs to get cut somewhere. Where, how much, and in what order is the question. Reich insists that the deficit commission on which Ryan is a member needs to focus on entitlements and military spending. Ryan agrees on entitlements, but challenges Reich to defend the almost-doubling of non-military discretionary spending over the last few years. It’s the rare instance where both are right:
Raising taxes is not good for economic growth. That raises the barrier and the hurdle to risk-taking, investment, innovation, entrepreneurship and job creation. I think that is bad tax policy and that is bad economic growth policy… We have to get spending on the right trajectory. If want to have these kinds of investments in infrastructure and education, we have got to get a grip on entitlements because they’re crowding everything out of the budget. I would argue that if we do real entitlement reform, which doesn’t hurt people in and near retirement right now, but puts us on a better trajectory going forward, that is going to give us some breathing space in the credit markets, it is going to take pressure off of interest rates, and that is going to help the economy right now.
In order to gain control of federal spending and expansion, everything has to be on the table. However, one has to remember that one of the few duties reserved to the federal government by the Constitution is national defense. There may be plenty of places to trim at the Pentagon, and some of our World War II-era deployments should be reconsidered, especially where we provide security for nations wealthy enough now to handle it themselves. With a war in Afghanistan and a massive counterterrorist effort deployed globally, however, we have to move cautiously and effectively when trimming defense spending.
Reich is correct when he says that spending cuts won’t matter until they take place in entitlements such as Medicare and Social Security. For that matter, neither will tax increases, as Ryan points out. We have over $70 trillion in unfunded liabilities in these programs under current obligations, and no amount of tax increases can possibly address that Sword of Damocles. Whether we like it or not, we need to reset those obligations, more narrowly define the mission of both programs and their eligibility requirements, and do that now rather than put it off any later. If we want to remain an engine of economic growth for the world, we have to ensure that we don’t allow the federal government to seize any more of our output than we do now — and that means we have to start making cuts.