The Simpson-Bowles Consensus Isn’t Common Sense. It’s Nonsense.November 28th, 2012 12:45 pm Jeff Madrick
Capping federal spending at 21 percent of GDP is arbitrary, shortsighted, and wrong for America.
The Simpson-Bowles budget-balancing plan seems to have become the common-sense standard for dealing with America’s future budget deficits. I’d say this move toward the right is dangerous to the future of the nation and essentially cruel—far more dangerous than the level of the deficit over the next 15 years. The commission, formally known as the Commission on Fiscal Responsibility and Reform, appointed by President Obama, achieves its deficit reduction by reducing government spending to do two-thirds of the job and raising taxes to do only one-third of the job. Even 50-50 would not be fair in such a low-tax nation. The commission proposed cuts in Social Security benefits of 15 percent for medium earners, for example.
But easily the most shortsighted objective is to hold federal spending to 21 percent of Gross Domestic Product into the future. How did they get this number? It is roughly the average level of federal spending since 1970. This is not a reasonable standard—it is not even a way to think about the issue. So where did the idea originally come from? The answer: the right-wing Heritage Foundation.
Now our most respected elder statesmen of the economy, Paul Volcker and Warren Buffett, are endorsing the 21-percent level in recent editorials. It may have been missed in Buffett’s piece, which endorsed a 30-percent tax on the rich, and correctly so. But he said it plain as day: “Our government’s goal should be to…spend about 21 percent of GDP.”
Oh my. Did they do any analysis at all about what that level would mean for retired, sick, and middle-income-to-poor Americans? Did it occur to them how vastly the U.S. economy has changed over those years? There are many more retirees, health care is more expensive and more extensive, the U.S. has chosen to fight costly wars, and its infrastructure and educational needs are dire.
The words of the wise oracles should not be taken seriously. One wonders whether Volcker would have run the Federal Reserve or Buffett picked stock on such skimpy analysis. They present no evidence, nor do I think they have done any research or even reading that shows that a 21-percent spending level will make the economy more efficient than, say, a 24-percent level of spending.
And they beat their chests as the exemplars of responsibility in an otherwise irresponsible America. Moreover, Pete Peterson, of course, is now financing a road tour for Bowles and Simpson to fight their great moral battle to get America’s budget under control—as a reminder, not by raising taxes significantly but by cutting social entitlements significantly. America cannot be run by men like these. America’s great moral battle is for social justice and adequate federal investment.