In an op-ed at The Wall Street Journal, Daniel Mitchell makes an interesting proposal:
Rather than fixating on deficits and debt, I suggest another goal: Ensure that government spending, over time, grows more slowly than the private economy. Evidence from economies around the world shows this is the best path to bring down deficits and nurture prosperity.
He goes on to explain how it would work and cites the examples of how something like his proposal has worked in Canada, Sweden, and Germany, not exactly havens of anarcho-capitalism.
While I think his ideas have merit, I’m still skeptical as to their practicality. For one thing, I’m skeptical of any attempt at central planning. I don’t think they can ever be administered quite as well as their proponents believe.
Additionally, private sector growth is always an after-the-fact determination. How would he propose that the government deal with the inevitable miscalculations and is that politically possible?
Finally, how would his “Golden Rule” operate in cyclical downturns? He appears to want the operative words in his prescription to be “grows more slowly” but I think they’re actually “over time”. To me his proposal would require a very different balance between discretionary spending and entitlement spending than actually prevails.
I don’t think our most serious fiscal problem is that government grows during and immediately after recessions. I think it’s that government grows during and immediately after recessions, long after the recovery is well under way, while the recovery is peaking, and ever after.
I think there’s a name for all of this and it’s “time inconsistency”. What would motivate politicians to behave as he’d want them? Statesmanship? That’s a good one.