A Thousand Cuts

by Patrick Appel

Veronique de Rugy argues that cutting spending is not only possible and necessary but that it can be politically expedient:

Cutting public spending can seem challenging. Entitlement spending increases automatically in a recession and as the population ages. Meanwhile, military actions in Afghanistan and Iraq and the ongoing threat of terrorism all help lawmakers claim that those parts of the budget are off limits. Lawmakers tend to be wary of spending reductions in general, as they believe their political survival rests on rewarding their supporters with jobs or subsidies. Yet there is evidence that Congress can cut spendingand cut it by a lot.

The spending debate usually focuses on Congress and the President, but there is also an incentive problem at lower levels of government. During the presidential debates, Obama talked about taking a scalpel rather than a hatchet to spending. I'd rather hand out thousands of scalpels to the federal bureaucracy.

The problem with cutting spending at the highest levels is much waste is hard to identify. No matter how deft Obama's scalpel is, it's inconceivable he will be better able to identify deadwood than the federal workers assigned to these projects. But these workers have no reason to do a cost-benefit analysis; it's not their money, if the department doesn't spend its full budget the budget might get clipped the next year, there is no reward for coming in under budget, and it's a political liability to cut corners. Giving departments bonuses for slashing spending or allowing unused funds to roll-over into the next year's budget would begin to fix this incentive problem. Even if these steps didn't cut the deficit significantly, it would result in a more efficient government, provided you don't make the incentives so attractive that government workers begin cutting worthwhile services and projects.