Paul Kedrosky "thought experiment" on US Spending

Posted on 02/07/10 at 1:00pm by John Boyd

Great post by Paul Kedrosky simply taking US spending from 2000 and applying a 4% annual increase just to see what the deficit would be if we had grown by around the rate of inflation. Obviously, this doesn't account for military spending yet the point is relatively powerful.

If the US would simply cut spending to more rational levels we could eliminate the fiscal freight train heading our way. It's my belief, that even with the trillion or so in spending cuts this would require, much of this "slack" would be taken by private investment.

I believe a lot of private investment is being held back because people fear an imending fiscal crisis. It's a relatively rational assumption. Why engage in a large project when a potential debt crisis is right around the corner impacting long term costs of financing and the macro economy?

This dramatic cut in spending needs to take place both at the national and state level as folks were getting lifetime pensions after 5 years of service or other fat cat deals. All of these deals need to be recut or eliminated. That also means tackling medicare and social security.

What good is reinstitution "pay as you go" in Congress if you are already spending way too much?

Interestingly, the levels you get here are somewhat similar to those in my email last week where I said cutting by $800 billion is about right here.

Source here.

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