Yes We Can -- Cut Government

President Obama is famously worrying about his fellow Americans right now. In tough times, he told the New York Times, when people are scared, "facts and science and argument does not seem to be winning the day all the time."

The trouble with a statement like that is simple. Everyone thinks they have "facts and science and argument" on their side.

The thing about the president's critics is that we believe that, especially on economic policy, the president is on the side of rabbit feet, superstition and exploded Keynesian science.

Keynesian economics says that, whenever you are in a jam the government should print money and spend more on vital infrastructure. Conservatives say that the science is in on that: it does not work. It did not work in the 1930s and it did not work in the 1970s, and it will not work now.

What is needed now is to cut wasteful government spending and get back to hard money.

Now we have three case studies, thanks to Reason, about three western governments that cut spending and got their national economies on track.

Case 1: US after WWII. Arnold Kling writes that:

Government spending plummeted by nearly two-thirds between 1945 and 1947, from $93 billion to $36.3 billion in nominal terms. [In spite of the Keynesian multiplier] GDP increased almost 10 percent during that period, from $223 billion in 1945 to $244.1 billion in 1947. This is a rare precedent of a large drop in government spending, so its economic consequences are important to understand.

Case 2: New Zealand, 1980s Maurice McTigue writes that:

The government’s share of GDP was 45 percent, unemployment was 9 percent (it would later peak at 11 percent), the top tax rate was 66 percent, and the rate of economic growth was a sluggish 2 percent.

A decade later, New Zealand had one of the most competitive economies in the developed world. The government’s share of GDP had fallen to 27 percent, unemployment was a healthy 3 percent, and the top tax rate was 30 percent. The government went from 23 years of deficits to 17 years of surpluses and repaid most of the nation’s debt.

How was it done? By privatization, reducing civil service by 66 percent(!), "eliminating capital gains taxes, inheritance taxes, luxury taxes, and excise duties," halving tax rates, reducing deductions, making government agency heads accountable, and getting people off welfare.

Case 3: Canada, 1990s. The Liberal Party cut the increase in government spending and as a result "From 1992–93 to 2000–01, Canadian spending on federal programs fell from 17.5 percent of GDP to 11.3 percent." Debt went from 68 percent of GDP to 29 percent of GDP.

The great question facing President Obama is precisely the questions of "facts, science, and argument" relating to the best economic policy for a healthy growing economy.

And frankly, Mr. President, you are on the wrong side. What these case studies show is Yes We Can deal with the problem of a huge government and sluggish growth. The only problem is that it means throwing out everything that you and the Ruling Class believe--as myth, superstition, and self-serving hypocrisy.