Cutting Spending Is The Way To Sovle A Budget Crisis

See Most Successful Fiscal Rescue Plans Around the World Have Cut, Cut, Cut By Bridget Johnson of AEI.

"At today’s debt-crisis event with Senator Pat Toomey, AEI President Arthur Brooks referenced a fascinating study conducted by economic-policy heavyweights Kevin Hassett and Andrew Biggs in which they scrutinized the fiscal consolidations of 21 countries over the past 37 years. Published last December, the study serves as an especially pertinent tool in weighing the best options to solve the debt crisis and put our country back on sound fiscal footing, so it’s worth outlining again.

The keys of what they found:

— The typical consolidation that failed relied on 47 percent spending cuts and 53 percent tax increases.

— The typical consolidation that succeeded consisted of 85 percent spending cuts and 15 percent tax increases.

— The “most wildly successful” efforts by nations, as Brooks put it, went into tax cut territory: Finland in the late 1990s, pointed out by Biggs and Hassett as a model of successful consolidation, had 108 percent spending cuts along with modest tax cuts.

— In the third-rail department, they found that the typical successful consolidation allocated 38 percent of spending cuts to entitlements. In the howling unions department, they found that 25 percent of the cuts were in government salaries.

“If your problem is government spending, the solution is less government spending,” Brooks said today. Arguments against such cuts “generally are not practical,” he added, but instead are based on moral reasoning centered on notions of “fairness.”"