[Congressional Record Volume 157, Number 47 (Monday, April 4, 2011)]
[Senate]
[Pages S2068-S2069]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
BUDGET GAME-CHANGER
Mr. KYL. Mr. President, finally, I wish to have printed in the Record
and discuss briefly an op-ed in the Wall Street Journal of today titled
``Time for a Budget Game-Changer.'' This was written by Gary Becker,
George P. Shultz, and John Taylor. John Taylor and Gary Becker are both
economist professors, Becker at the University of Chicago, Taylor at
Stanford. Of course, George Shultz is a former Secretary of Labor,
Secretary of the Treasury, and Secretary of State. All three are
affiliated with the Hoover Institution. In this article, they present a
real answer to the two key problems that face us today.
I ask unanimous consent that this piece be printed in the Record at
the conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 1.)
Mr. KYL. The two key problems are that we don't have enough jobs and
we have a very high unemployment rate. We need to get the economy
growing, and we are having to borrow far too much money because of
government spending. What this piece points out is that there is a
direct relationship between the two. That is not too surprising. The
bottom line is that government borrowing and spending distorts the
market by making less money available for the private sector to invest.
If the private sector can invest, jobs can be created and we can grow
the economy.
What they do in this piece is create a credible strategy to reduce
the growth of Federal government spending, bring the deficit down, and
increase economic growth. Those goals are not only not inimical to each
other, they actually fit together nicely.
As they point out, the essential first step is to reduce
discretionary spending in the current fiscal year, 2011. That is the
work the Senate and House are engaged in right now. We will have to
pass a continuing resolution to fund the government through the end of
September. We can substantially reduce the spending, and they point out
how in this op-ed.
The second part is a longer term plan to get total spending as a
share of GDP down. They have a plan to do that in a relatively gradual
way but that nevertheless provides real, substantial savings over the
next 10 years and longer to a point that is consistent with the
historical relationship between the revenues the government has
collected and the spending the government makes.
[[Page S2069]]
Let me quote the first three sentences of their op-ed:
Wanted: A strategy for economic growth, full employment,
and deficit reduction--all without inflation. Experience
shows how to get there. Credible actions that reduce the
rapid growth of federal spending and debt will raise economic
growth and lower the unemployment rate. Higher private
investment, not more government purchases, is the surest way
to increase prosperity.
They go on to point out:
When private investment is high, unemployment is low. In
contrast, higher government spending is not associated with
lower unemployment.
It is a piece I recommend to all of my colleagues because it
establishes--and these are first-rate economists who have done the
research and can demonstrate beyond peradventure the direct
relationship between reduced government spending and more employment
and growth. The bottom line is, if we leave more money in the private
sector to be invested by businesses in the private sector, the more
they will invest and hire people, and the more the economy will grow.
Ironically, the more the economy grows, the more revenues the Federal
Government gets because we have more taxes and a higher tax basis.
Private economic growth is good for families and businesses and
people seeking jobs as well as for the Federal Government if we are
looking for more revenue. The wrong answer is to spend more money in
the government, 40-plus cents of which has to be borrowed. Every dollar
we spend we have to borrow 40 cents of, half of which is borrowed from
countries abroad. That borrowing and spending crowds out opportunities
in the private market to do the same.
So there is a direct relationship in terms of how much we can reduce
Federal spending on the one hand and how much we can grow the economy
on the other. That is what these economists point out--the way for us
both in the short term and the longer term to get a handle on both the
Federal budget deficit and induce the private sector to invest more,
thus reducing unemployment and increasing our economic growth.
I thank the Chair.
Exhibit 1
[From the Wall Street Journal, Apr. 4, 2011]
Time For a Budget Game-Changer
(By Gary S. Becker, George P. Shultz and John B. Taylor)
Wanted: A strategy for economic growth, full employment,
and deficit reduction--all without inflation. Experience
shows how to get there. Credible actions that reduce the
rapid growth of federal spending and debt will raise economic
growth and lower the unemployment rate. Higher private
investment, not more government purchases, is the surest way
to increase prosperity.
When private investment is high, unemployment is low. In
2006, investment--business fixed investment plus residential
investment--as a share of GDP was high, at 17%, and
unemployment was low, at 5%. By 2010 private investment as a
share of GDP was down to 12%, and unemployment was up to more
than 9%. In the year 2000, investment as a share of GDP was
17% while unemployment averaged around 4%. This is a regular
pattern.
In contrast, higher government spending is not associated
with lower unemployment. For example, when government
purchases of goods and services came down as a share of GDP
in the 1990s, unemployment didn't rise. In fact it fell, and
the higher level of government purchases as a share of GDP
since 2000 has clearly not been associated with lower
unemployment.
To the extent that government spending crowds out job-
creating private investment, it can actually worsen
unemployment. Indeed, extensive government efforts to
stimulate the economy and reduce joblessness by spending more
have failed to reduce joblessness.
Above all, the federal government needs a credible and
transparent budget strategy. It's time for a game-changer--a
budget action that will stop the recent discretionary
spending binge before it gets entrenched in government
agencies.
Second, we need to lay out a path for total federal
government spending growth for next year and later years that
will gradually bring spending into balance with the amount of
tax revenues generated in later years by the current tax
system. Assurance that the current tax system will remain in
place --pending genuine reform in corporate and personal
income taxes--will be an immediate stimulus.
All this must be accompanied by an accurate and simple
explanation of how the strategy will increase economic
growth, an explanation that will counteract scare stories and
also allow people outside of government to start making
plans, including business plans, to invest and hire. In this
respect the budget strategy should be seen in the context of
a larger pro-growth, pro-employment government reform
strategy.
We can see such a sensible budget strategy starting to
emerge. The first step of the strategy is largely being
addressed by the House budget plan for 2011, or HR1. Though
voted down in its entirety by the Senate, it is now being
split up into ``continuing'' resolutions that add up to the
same spending levels.
To see how HR1 works, note that discretionary
appropriations other than for defense and homeland security
were $460.1 billion in 2010, a sharp 22% increase over the
$378.4 billion a mere three years ago. HR1 reverses this
bulge by bringing these appropriations to $394.5 billion,
which is 4% higher than in 2008. Spending growth is greatly
reduced under HR1, but it is still enough to cover inflation
over those three years.
There is no reason why government agencies--from Treasury
and Commerce to the Executive Office of the President--cannot
get by with the same amount of funding they had in 2008 plus
increases for inflation. Anything less than HR1 would not
represent a credible first step. Changes in budget authority
convert to government outlays slowly. According to the
Congressional Budget Office, outlays will only be $19 billion
less in 2011 with HR1, meaning it would take spending to 24%
of GDP in 2011 from 24.1% today.
If HR1 is the first step of the strategy, then the second
step could come in the form of the budget resolution for 2012
also coming out of the House. We do not know what this will
look like, but it is likely to entail a gradual reduction in
spending as a share of GDP that would, in a reasonable number
of years, lead to a balanced budget without tax rate
increases.
To make the path credible, the budget resolution should
include instructions to the appropriations subcommittees
elaborating changes in government programs that will make the
spending goals a reality. These instructions must include a
requirement for reforms of the Social Security and health-
care systems.
Health-care reform is particularly difficult politically,
although absolutely necessary to get long-term government
spending under control. This is not the place to go into
various ways to make the health-care delivery system cheaper
and at the same time much more effective in promoting health.
However, it is absolutely essential to make wholesale changes
in ObamaCare, and many of its approaches to health reform.
The nearby chart shows an example of a path that brings
total federal outlays relative to GDP back to the level of
2007--19.5%. One line shows outlays as a share of GDP under
the CEO baseline released on March 18. The other shows the
spending path starting with HR1 in 2011. With HR1 federal
outlays grow at 2.7% per year from 2010 to 2021 in nominal
terms, while nominal GDP is expected to grow by 4.6% per
year.
Faster GDP growth will bring a balanced budget more quickly
by increasing the growth of tax revenues. Critics will argue
that such a budget plan will decrease economic growth and job
creation. Some, such as economists at Goldman Sachs and
Moody's, have already said that HR1 will lower economic
growth by as much as 2% this quarter and the next and cost
hundreds of thousands of jobs. But this is highly implausible
given the small size of the change in outlays in 2011 under
HR1, as shown in the chart. The change in spending is not
abrupt, as they claim, but quite gradual.
Those who predict that a gradual and credible plan to lower
spending growth will reduce job creation disregard the
private investment benefits that come from reducing the
threats of higher taxes, higher interest rates and a fiscal
crisis. This is the same thinking used to claim that the
stimulus package worked. These economic models failed in the
1970s, failed in 2008, and they are still failing.
Control of federal spending and a strategy for ending the
deficit will provide assurance that tax rates will not rise--
pending tax reform--and that uncontrolled deficits will not
recur. This assurance must be the foundation of strategy for
a healthy economy.
Mr. KYL. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. COATS. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. COATS. Mr. President, my understanding is that we are in morning
business and I have 10 minutes allocated to me. I may not take that
much time.
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