Some Thoughts on Controlling Federal Spending

Abstract

This paper is an overview of thoughts about controlling federal spending. At the outset, I note my concern that federal spending is too high and comes at the detriment of good incentives, productivity, and growth. I review the market-oriented economist’s view of the proper role of government and note that many government activities go well beyond them. “Doing something” about it is problematic due to the difficult politics of special interests and of reliance on government programs. In this light, I discuss four specifics. Regarding Social Security, I suggest moving it further toward a program for low-income seniors and allowing younger people outside options. For Medicare, I suggest moving to premium support and capping the real dollar value of government-paid premiums. This should be combined with encouraging competitive pricing of insurance plans for seniors well as for care. This avoids the harsh effects of “cost controls” through price controls and government care restrictions. Mean-tested programs should diminish with strong economic growth, though better targeting and effectiveness can reduce their burden. Finally, I offer hope that fiscal rules (e.g., debt brakes, base closing commissions) may arise to help reduce spending.