Policy makers who want to go back to earlier spending levels are ignoring the hard truth about the ways the world has changed.
Americans may need to get used to the idea that government will make up a bigger part of our economy in the future, former treasury secretary and Obama economic advisor Larry Summers said today at the Washington Ideas Forum.
At least, they do if they want to keep living in the sort of country they've gotten used to.
Summers tried to offer a dose of realism to the debate over debt reduction and the fast-approaching fiscal cliff, the massive package of tax hikes and spending cuts scheduled to kick in at the end of the year that economists, including Summers, say will plunge the economy back into a recession. Summers argued, as many have, that the final deal the president strikes with Republicans needs to address our long-term debt problems without imperiling the near-term health of the recovery. But he said that policy makers who want to pare government spending back so that it makes up the same portion of the economy it has in past decades -- say, around 20 percent -- are ignoring the hard truth about the ways the world has changed.
The issue boils down to prices. The real price of things consumers spend on, like food and televisions, has either fallen over the years, or risen at a relatively slow rate. The prices of things that government pays for, such as health care and education, have skyrocketed. The country is also aging, which will put more stress on health programs such as medicaid medicare and Medicaid. As families and businesses have to spend less, and government needs to spend more, the balance of the economy is bound to shift.
The bottom line: If we want to keep the same sort of services we've all become accustomed to, we can't hope to turn back the clock entirely on government spending.
"If we want to have the same kind of society we always had...you may see some upward drift in government," he said. "That's why you need to work ever harder to eliminate government activities that don't need to take place."
It strikes me that this may actually be a harder truth to contend with for liberals than conservatives. The Republican party's prescription for government is that it should, in fact, do less and spend less. But there isn't really a magic way for Democrats to bring government spending back down to its historical levels without, in some significant ways, cutting the things they like. The upshot: the Democrats need to honestly sell the idea that government will play a larger role in the economy in the future.
"You need to reckon in a way that the political debate doesn't quite that there are some forces pushing us to larger government, " he said.
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