Feds, state ineptly foundering way out of budget crises

LAWMAKERS in Olympia responded to a budget crisis by imposing taxes on lawyers, accountants, cigarettes, beer, candy and bottled water. Lawmakers in Washington, D.C., have handled its much larger problem — a deficit equal to 12 percent of gross domestic product — entirely by borrowing.

In the long run, neither way works.

The research of two Harvard professors of economics underlines the simple, old-fashioned idea that the best way to close a deficit is to spend less money. The professors, Alberto Alesina and Silvia Ardagna, have been studying this question on and off for more than a decade. Back in July 1999, they presented evidence that public spending, particularly money spent on government salaries, tended to suppress private investment.

The common view has been the opposite — that by spending public money, government can "leverage" the private sector into investing. Here and there, it can. If it builds a bridge, it stimulates the production of cement.

But many citizens, each having to pay a bit more tax (and maybe a bit more for cement) will make fewer investments. The statistics are clear on this, the economists said. Overall, government spending is not an economic stimulant.

The economists looked at a range of industrial countries. Many had budget crises. The ones that recovered the most strongly tended to be countries like Canada, which cut spending sharply in the 1990s.

Spending cuts are supposedly the conservatives' program. But Alesina and Ardagna found that across the industrial world, they were actually most often done by left-leaning governments. Canada cut its budget under the Liberal government of Jean Chrétien.

We should import Canada's frugality and get our budget under control.