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After the 2008 Crisis
Since the financial panic of 2008, Governments have taken Keynesian policies to unprecedented levels via "stimulus" programs and monetary policies implemented by Central Banks to help aid economic recovery. Some groups, such as the International Monetary Fund (IMF), have taken an approach that actually reduces Government spending as a way to address what they consider to be Government over-spending prior to the financial crisis. Specifically, in Europe's southern countries, the IMF has reduced Government spending, i.e. implemented austerity, as a way to balance budgets.
The political left generally views these austerity measures as counterproductive, or even socially immoral. Their primary concerns about spending cuts, beyond reduced total economic activity, are the effects on important social programs such as unemployment insurance and medical subsidies.
The political right, on the other hand, sees austerity as the only solution for those beleaguered countries. Their reasoning is based on the premise that those countries, Greece for example, have no way to finance spending at their pre-crisis levels. The Greek economy does not generate enough tax revenue (and hasn't for many years) and they are shut-out from bond markets, meaning they cannot borrow to fund their spending. Greece can only maintain even its reduced Government spending levels by accepting bailouts from the European Central Bank (ECB). The result: Greece has indeed seen reduced social spending. Here in the U.S., the March 2013 "Sequestration" budget cuts have been referred to as our own version of austerity. With the political left having similar concerns for economic activity and social programs.
What to do Now
I won't get into the politically charged argument over whether austerity is the best answer or not. What I will point out is that one component of Keynes' policy view was that Governments should save money during strong economic times to help fund increased spending during weak times. By doing so, Governments would avoid extensive borrowing during times of increased spending. This often overlooked strategy is something few countries have practiced in their adoption of Keynesian economic policies.
How might we reduce Government spending without jeopardizing important social programs? I submit one idea would be to reduce Government waste. Using the U.S. as an example, the amounts below are as reported by Government agency Inspector's General (IG's). The IG's are put in place specifically to find and report waste.
The Dept. of Health and Human Services (DHHS) determined that $8 billion is wasted annually due to Medicare and Medicaid practices. The Dept. of Defense (DOD) claims that $2.5 billion was wasted on a missile defense program. The DOD also found $336 million in waste on maintenance contracts. The Veterans Administration (VA) found $2.5 billion in erroneous small business payments. The VA also found $760 million in other payments made in error. The Dept. of Energy (DOE) found $437 million in waste at a single laboratory. The Internal Revenue Service (IRS) uncovered $50 million in wasteful spending for training conferences. The Dept. of Agriculture (USDA) made $351 million in erroneous payments.
Add these up and you get $14.9 billion in identified waste. I realize that most of this money is already spent and we can't get it back. But, the Inspector General reports should not be politically difficult to use as a guide to cut Government spending based on waste reduction. Shouldn't this be exactly what we expect from our elected officials when times get tough? Wouldn't this be more beneficial than arguing over austerity's usefulness? |
