New Book Explains How to Shrink Government, Strengthen Economy

Published December 1, 2005

In his newly released book, Chris Edwards, director of tax policy at the Cato Institute, details ways to cut 100 federal agencies, increase freedom, and improve economic performance. The following is an excerpt from the introduction to Downsizing the Federal Government, which went on sale November 25.

The federal government is running large budget deficits, spending too much, and heading toward a financial crisis. Federal spending increased by one-third in President George W. Bush’s first four years, with large increases in agriculture, defense, education, health care, and other areas. These increases have come just as the costs of federal entitlement programs are set to balloon when the Baby Boomer generation retires.

Spending on the three main entitlement programs–Social Security, Medicare, and Medicaid–is expected to double from $1 trillion in 2005 to $2 trillion by 2015.

Where will the money come from? If government spending is not cut, average working families will face huge tax increases that dwarf anything seen in decades. Tax increases would damage the economy and be strongly resisted by the public. As a consequence, policymakers need to begin identifying programs in the federal budget that can be cut, transferred to the states, or privatized.

Downsizing the Federal Government ( provides policymakers and the public with a detailed guide to potential federal budget reforms. It proposes eliminating more than 100 agencies and programs to reduce federal spending from 20 to 15 percent of the nation’s economy.

The country would be better off if the $2.5 trillion federal government were downsized. Cutting the budget would avert the looming federal financial crisis and give Americans a stronger economy and a freer society.

Plan to Cut Spending

A Brookings Institution book on the looming federal deficit argued, “although tax increases are unpopular with those who favor smaller government, no one has suggested how to achieve balance without them.” I have designed a plan to balance the federal budget without tax increases. Downsizing the Federal Government identifies $380 billion in annual savings from discretionary programs, and savings to entitlement programs worth $270 billion annually by 2015. These reforms would balance the budget by 2011–even with all of the Bush administration’s tax cuts in place.

The following are the types of federal programs that should be cut:

  • programs that are wasteful–meaning duplicative, obsolete, mismanaged, ineffective, or subject to high levels of fraud and abuse;
  • programs that benefit special interests at the expense of average families and taxpayers;
  • programs that actively damage society, such as by distorting the economy, restricting freedom, or harming the environment;
  • programs that should be devolved to state and local governments for both constitutional and practical reasons; and
  • programs that should be privatized or left to entrepreneurs and charities.

Federal programs that are good candidates for privatization include Amtrak, the air traffic control system, and the National Zoo in Washington. Programs that are chronically mismanaged and should be terminated include the Bureau of Indian Affairs and the National Aeronautics and Space Administration.

Other programs ought to be handed back to state responsibility. Highway construction, for example, is properly a state function, and there is no economic or technical reason why federal funding is necessary. Besides, federal highway money is often wasted on low-priority projects in the districts of important members of Congress, while useful projects in congested states go unfunded.

Public Versus Private

Mismanagement is only one problem with the federal government. A bigger problem is that it does many things that make average citizens worse off. People who don’t follow public policy might assume there must be “a good reason” for existing programs, in the sense of a rational public purpose. It turns out that for many programs there is not.

For example, economists widely agree that farm subsidies are counterproductive and should be repealed. The existence of farm subsidies cannot be explained by economic logic, but only by the political logic of self-interested farm-state politicians.

During much of the 20th century the “public interest theory of government” held sway. The idea was that policymakers acted with the best interests of the general public in mind. Politicians and bureaucrats like to call themselves “public servants,” so one might assume they would act accordingly.

However, the experience with a big federal government since the 1930s shows the public interest theory has little real-world application. Ill-conceived laws with little public support get enacted all the time. Many federal agencies perform poorly year after year, yet receive steadily growing budgets. Government officials often put career advancement, turf protection, and other personal factors ahead of the public interest.

Watergate Effect

The view that government officials put the public interest first took a nosedive after Watergate. In academia at about the same time, the public interest theory of government was being unseated by “public choice” theory, which holds that self-interested officials and lobby groups are the key drivers of government policy. That theory explains the perverse results we often observe in government.

Of course, the Founding Fathers were well aware that private interests would try to use government to the detriment of the general welfare. Accordingly, they created a constitutional framework that sought to limit federal power. Unfortunately, that framework was largely discarded in the 20th century–limits on federal power did not seem to be needed because the government was assumed to act in the public interest.

Rising Skepticism

Today, Americans are more skeptical about government. There is also a renewed appreciation of the fact that even well-intentioned programs and regulations are poor substitutes for competitive private markets. The large expansion of the federal government from the 1930s into the 1970s saw the birth of many failed, even disastrous, programs. Under “urban renewal” policies, for example, the government bulldozed inner city neighborhoods across the country and warehoused millions of people in crime-infested high-rises.

American cities are still recovering from the damage caused by the urban policies of 50 years ago.

The task ahead is to mop up the mess left by all the failed federal interventions of the last century, and to resurrect the framework of limited government the Founders established.

Downsizing the Federal Government proposes many cuts that may seem radical to some, but given the dismal record of many programs, there should be a bigger burden on policymakers to prove that programs fill crucial needs that the states and the private sector cannot meet. Instead of focusing on the “bedtime stories” that special interest activists tell about how programs are supposed to work, policymakers should look at how programs actually work in the real world.

Chances for Reform

How can spending cuts be achieved given the political hurdles to reform? There are no simple solutions, but tax, budget, and electoral institutions could be changed to reduce Washington’s pro-spending bias. The federal tax system should be made more transparent so that citizens better understand how much the government costs. Budget process reforms–including rigid spending caps–would ensure that Congress makes responsible trade-offs rather than pushing debt onto future generations.

Political resistance to reforms can be overcome, and the culture of overspending can be changed. After all, the federal government remained quite small through the nation’s first 150 years or so. During that period, average people and their representatives in Washington generally believed in a frugal, limited, and constitutional government.

Congress has occasionally cut spending. At the end of the Cold War, defense spending was downsized. Defense spending peaked at $320 billion in 1991, and then was cut to $266 billion by 1996. The trick now is to convince Congress that many nondefense programs are as unnecessary as Cold War defense spending.

Pro-Spending Myth

One myth to dispel is that policymakers cannot make budget cuts without a backlash from voters. Republican reform efforts in the 1990s did not lead to a voter rebuke. In 1996, the party was denounced viciously when it reformed welfare. But they stuck together and succeeded, and today that achievement is widely hailed.

Also in the 1990s, the Republicans proposed reductions to many sensitive programs–including Medicare, Medicaid, education, housing, and farm subsidies. In their budget plan for 1996, House Republicans voted to abolish more than 200 programs, including whole departments and agencies.

The Republicans who led on these reforms were not thrown out of office, despite many of them being specifically targeted for defeat in 1996. The most hardcore budget cutters in the 104th Congress were freshmen, many of whom were reelected with larger vote margins than they had received in 1994.

Making the needed budget cuts will be a challenge. But policymakers should not view budget cutting as if it were a matter of taking bad-tasting medicine. Well-crafted cuts would be positive from many perspectives. Downsizing the federal government would expand the economy, enlarge personal freedom, and leave a positive fiscal legacy to the next generation.

Chris Edwards ([email protected]) is director of tax policy at the Cato Institute.

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