Tags: Summers | election | bigger | spending

Larry Summers: Govt To Expand Regardless of Election Results

Monday, 20 August 2012 09:42 AM

The government will keep getting bigger regardless of who wins November’s presidential elections, says former U.S. Treasury Secretary Lawrence Summers.

Changing demographics will require hefty public spending, plus interest payments on government debt coupled with healthcare spending will force the government to go easy on slashing spending to narrow deficits despite campaign promises.

Defense spending has room to fall, but with troops deployed such spending cuts would be tough to push through as well.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

“Even preserving the amount of government functions the U.S. had before the financial crisis will require substantial increases in the share of the economy devoted to the public sector,” Summers writes in a Financial Times column.

“Since the early 1980s the price of hospital care and higher education has risen fivefold relative to the price of cars and clothing and more than 100-fold relative to the price of televisions,” Summers writes.

“Similarly, the complexity and hence the cost of everything from cutting-edge scientific
research to regulating banks rises faster than overall inflation.”

If the U.S. is to remain competitive, it must resist the temptation to push through draconian spending cuts.

“These trends reflect long-running trends in globalization and technology. They imply that if government is to continue providing the same level of these services, government spending as a share of the economy has to rise, by at least 3 percent of [gross domestic product].”

Government spending has grabbed headlines lately thanks to a fast-approaching fiscal adjustment that will strike at the end of the year.

On Dec. 31, the Bush-era tax cuts and other tax breaks expire at the same time pre-programmed cuts to public spending kick in, a combination known as a fiscal cliff that could send the country sliding back into a recession next year if left unchecked by Congress.

Lawmakers have appeared unwilling to address tax and spending issues in an election year, though some have hinted at the possibility of dealing with the fiscal cliff on a retroactive basis early in 2013.

One former lawmaker warned that Congress must make politically tough decisions to steer the country away from the fiscal cliff and away from recession.

“Between Nov. 6 and Dec.31, there will be a whirlpool of $5 to 7 trillion floating around,” says Alan Simpson, former Wyoming Senator, according to CNBC.

“If you go too far, we’re going to go into recession, if you do too little we go into recession,” he adds.

“If you can’t stand the word ‘compromise’ — if you can’t compromise on an issue without compromising yourself — you’re in deep trouble as a legislator.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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Monday, 20 August 2012 09:42 AM
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