[Congressional Record (Bound Edition), Volume 157 (2011), Part 4]
[Senate]
[Pages 5030-5031]
[From the U.S. 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.
  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

[[Page 5031]]

     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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