October 24, 2001
Many in Congress have another plan to revive the economy. They
propose massive amounts of new federal spending to "pump up" the
economy -- to finance such projects as a high-speed rail line from
upstate New York to New York City, to shower subsidies on Amtrak,
and to make infrastructure improvements that would cost $50 billion
We're at war, and it's not cheap. One month, Congress was
haggling bitterly over whether to approve $8 billion for missile
defense. The next month, a $40 billion spending bill for national
security and damage recovery sails through both houses in less than
three weeks. Much more is sure to be needed, and virtually everyone
agrees something must be done to kick-start the economy.
How we do this, though, is crucial. Do we respond to the
terrorist attacks by building commuter rail systems? Or do we spend
what we must to repair the damage, help the victims, strengthen
counter-terrorism and the military -- and spend what we can on
permanent, substantial tax cuts to stimulate the economy?
You only need to know a little history to know that tax cuts --
not more government spending -- are the way to go.
During the Great Depression, we went the "more-spending" route.
Between 1930 and 1940, federal spending tripled as government
scrambled to get things moving again. Halfway through the decade,
gross domestic product had fallen 27 percent. By 1940, unemployment
had more than doubled.
Japan tried the "more-spending" route, too. With its economy
struggling in the early 1990s, Japan implemented 10 spending
packages -- all centered around costly public-works projects --
worth $254 billion. The result? Its industrial base languished, its
standard of living slipped, and the government hemorrhaged red ink.
Asia's economic star went from being a high-growth wonder in the
1980s to a slow-growth basket case in the 1990s.
Contrast Japan's experience with Ireland, which reduced
government spending by sizeable margins in the 1990s. Government
has shrunk, and its standard of living has soared. Once one of the
poorest countries in Europe, Ireland is now one of the
But the point is not just that more spending doesn't work. It's
that President Bush's way -- growing the economy with tax cuts and
holding the line on non-military, non-terrorism spending -- does
work. John F. Kennedy proved it in the 1960s, and Ronald Reagan
proved it again in the 1980s.
President Kennedy, who inherited a sluggish economy when he took
office, persuaded Congress to pass a large tax cut. In response,
gross domestic product grew 50 percent during the decade, then a
post-war-record. Then the 1981 tax cuts of President Reagan led to
what then became the longest peacetime economic expansion in U.S.
history. That record stood until the 1990s, when smaller government
produced still more growth.
To be fair, Congress' job isn't easy. The prospect of a federal
spending spree brings goose bumps to lobbyists and others who feed
at the federal trough. Vast legislative agendas have been concocted
overnight at the mere prospect of Congress using more federal
spending to ward off a recession.
Suddenly, Sen. Harry Reid, D-Nev., is proposing $40 billion in
new transportation spending, $12 billion of which would go to
Amtrak (which never has come close to self-sufficiency, let alone
profitability). New York Gov. George Pataki is asking $54 billion
for, among other things, a high-speed rail line. Rep. James
Oberstar, D-Minn., has his own $50 billion stimulus package, and
Rep. Don Young, R-Alaska, wants $70 billion in loans and grants for
But Congress must reject this line of thinking. Yes, we need more spending -- but by taxpayers, not by government. If Congress wants to help, it should cut taxes to encourage work, saving and investment. If it was possible for the government to bring prosperity through more spending, it would've happened a long time ago.
Ronald Utt, a senior research fellow in economic policy studies at The Heritage Foundation, served as privatization "czar" for President Reagan.
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