In Favor of Across-the-Board Cuts in Government Spending

by Mario Rizzo

I am not sure which is worse: superstitions based on science or superstitions pure and simple.

Many people would react to across the board cuts in government spending by saying something like: “This is crazy; some things are more important than others. We should cut the less important things first.” And, indeed, economists would seem to agree. After all, the equi-marginal principle was one of the first “discoveries” of the marginal revolution. No sense cutting programs in such a way that some will have very high returns, however measured, at the margin while others will have very low returns. Irrational!

However, what is rational for a household or an individual need not be rational policy for the government. Why is that?

First, there is the problem of measuring returns.  At the most basic level, are we talking about returns from the private or the social point of view? There are usually rents to be gained by specific groups. Are we to consider the returns large corporate farmers get from the agricultural support programs social returns? I think most people would say no. So the enforcer of the equi-marginal principle must adjust for returns that are purely private and not social.

Second, when ordinary people (especially politicians) hear about the possibility that social returns might be greater than private returns (the obverse of the previous case), they tend to get over-stimulated. They hear RESEARCH or EDUCATION.  OMG. We cannot cut those. But marginal thinking, correctly applied, would say no such thing.  Do the specific programs under evaluation, not the generic concepts of research and education, have positive social returns at the margin?

Do “we” need more unqualified young people going to college? Did you know that about half do not graduate in four years? Do we need to feed the construction and non-teaching related administrator boom at universities? Do we need to fund more mathematical economics?  (If you think yes, you have never seen the current work in this area.)

And then even if there were positive marginal returns, they may not be net positive returns. What I am referring to here is the crowding out of more efficient methods of delivering education services by highly subsidized traditional methods. Efficiency in delivery is important.

The basic point, however, is this: The political system responds to rents, not to social costs or benefits. If politicians cut at all, they will do so, as a very rough approximation, such that the rents (private returns to their constituencies) will be equated per dollar spent. 

Fine-tuning the budget cuts according to some rational social-welfare principle may sound good. But it has nothing much to do with the reality we face.

But things are worse than that. Opening up a discussion about where to cut – which are the programs more worthy or less worthy of being cut – opens the door to all sorts of special-interest pleading. The interests will always clothe their private benefits in the robes of social welfare – job creation, external benefits, indirect effects of medical discovery, and so forth.  Perhaps the genius economists among us can sort out fact from fantasy, but the public cannot.

As each special interest group makes its case, the probabilities of genuine reform in the federal government’s spending become more and more remote. 

There is really no practical alternative to across-the-board budget cuts if the government is to become serious about retrenchment and reform.

8 thoughts on “In Favor of Across-the-Board Cuts in Government Spending

  1. I’m not sure about the strength of this argument in favor of across-the-board budget cuts. I agree that leaving politicians to decide what sectors should endure the biggest budget cuts is no guarantee of rational budget cuts (in addition, it may compromise the main purpose of reforms by conditioning budget reductions to pork barrel politics). However, you can also make the contrary claim: that across-the-board budget cuts implicitly validates the previous inefficient resource allocation of rent-seeking politicians who pumped government spending in the first place. The information flaws of politicians to decide where to apply budget cuts also applies to their decision of increasing expenses. In my view, the across-the-board budget cuts is better supported in principle, rather than consequential grounds: there are times where large budgets simply will make economies collapse, so it’s futile to engage in cherry-picking; budget cuts should be large and applied to all sectors. Having said this, I believe sometimes cherry-picking would be useful, as when Costa Rica decided to refrain from financing an army and devoted its previous budget to education, back in 1949, thereby taking this country away from the political malaise that engulfed other Central-American countries.

  2. cherry picking assumes a reasonably rational mind, which our Congress and administration fail to possess. When a boat is sinking, it doesn’t matter where you bail–the prime goal in budgeting is to make income exceed outgo–the details pale in comparison!

  3. There must be some level of aggregation (forgive the word) at which cuts are imposed and within which there would be discretion as to how to allocate the remaining funds. In fact, there should be several such levels, starting with a sufficiently adult House of Reps that passed a budget with a certain level of spending and subsequently negotiated only how that fixed spending would be allocated. If the Senate added spending, at some point the House could simply multiply all dollar amounts by the necessary factor to bring the total within the imposed limit, and pass that. If the President vetoed it, the House could simply keep re-passing it, leaving the other branches with the choice of a limited budget or no budget. The fact that the R’s who control the House are not doing this demonstrates that their limited-government, fiscal-responsibility rhetoric is just empty hand-wringing.

  4. Surely Mario’s argument is an application of Arrow’s Impossibility Theorem. There is no rational solution to cutting expenditures in a collective choice setting.

    Across the board cuts appeal to a sesne of fairness. Alternatively, they can be viewed as a rule of thumb in such an otherwise impossible choice setting.

  5. The most critical issue is to cut past the threshold and actually cut. Not imaginary cuts to future increases in spending.

    If an across the board cut is imposed and accepted, we can spend years afterwords re-allocating funds according to the whim of whatever group of politicians is in control.

    Whether defense spending is reduced or Elmo is laid off is a question of the values of the politicians we elect, and so long as they do not increase total spending, that choice is non-critical.

  6. Won’t work. A democrat will always try and restrict cuts that is perceived to directly hurt the least number of people. The cross-the-board cut guy will be booted out of office for his “heartlessnes”.

  7. Heya! I’m at work browsing your blog from my new apple iphone! Just wanted to say I love reading your blog and look forward to all your posts! Carry on the outstanding work!

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