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It's not about tax cuts, but the size of government

Glenn Hubbard, dean of the Graduate School of Business at Columbia University.

TEXT OF INTERVIEW

Kai Ryssdal: There's no shortgage of ideas about what to do to fix the economy: you plow more money in. You cut taxes. You help small businesses. You create jobs. You fix the budget deficit. I could go on; you get the point.

Glenn Hubbard has more experience than most in coming up with those kinds of ideas. He ran the Council of Economic Advisors for President George W. Bush. He's the Dean of the Columbia business school right now, and he's also a frequent commentator on this program. And he's written a new book about our economic distress called "Seeds of Destruction."

Glenn, good to have you with us.

Glenn Hubbard: Pleasure.

Ryssdal: This is a policy paper as much as it is an actual book, and you've got recommendations for everything from trade policy to energy policy to interest rates to entitlements. But if you try to fix everything, you wind up fixing nothing, right? So pick one -- is there a key that is going to get this economy going?

Hubbard: Yes. The first thing to do is to realize what the actual problem is -- we're facing long-term structural problems. So the goal is to get the U.S. pivot much more toward a saving and investment society.

Ryssdal: Pivot implies moving with speed, though, and alacrity, not something the American government or the American people do.

Hubbard: No, I think it's just the opposite. What I argue in the book is if we make a gradual shift toward greater public and private savings, toward more investment for our future, we can pull this off.

Ryssdal: So what's the first step then, Glenn?

Hubbard: Well I think the first step is a matter of the budget, is to say let's look at our long-term budget problems and get something going right. What I think is important for the budget is to focus government where government is needed. Frankly I think we need a stronger social safety net. What we can't afford as a society is a large open-ended entitlement program like we have with Social Security and Medicare. But the guts of these programs for people who need them are essential.

Ryssdal: All right, so I'm going to bait you a little on this one: what about raising taxes?

Hubbard: Well, you know frankly, that's something we're going to have to consider. If the American people actually want a government as big as the one we now have, we would have to raise every tax by a very large amount.

Ryssdal: O.K. but wait a minute. You are the guy who helped write the Bush-era tax cuts that Congress is going to be taking up when it gets back, in order to extend them or not. The Congressional Budget Office came out the other day and said, you know what, if we do extend these tax cuts, it will hurt the economy; it will add to the debt and do bad things. So make the case for me then that cutting taxes is O.K.

Hubbard: I don't think that's what the CBO says. You look at one side of it, which is the debt; there's no doubt about it and simulations from almost all economic forecasters would have positive benefits of the tax cuts. But it's not the right question. The real discussion is not whether to extend the tax cuts, but what's the size of government? If we really want the government that's in President Obama's budget, we need to repeal all of the 2001, 2003 tax cuts and then some. We probably need a new tax system.

Ryssdal: Say that again: repeal those tax cuts? Did you really just say that?

Hubbard: If you want a government that big -- I don't. But if the American people say, we would like a government that's running 5 -- and the out years -- up to 10 percentage points of GDP more than we're raising in revenue, yes we have to raise taxes. The difference I would add from the administration is you can't kid yourself into thinking you only have to raise high-income people's taxes. We have to raise all taxes, everybody, to close the gap.

Ryssdal: So if smaller government, then, means doing something about Social Security, and doing something about Medicare, get specific for me. What do we do? Do we cut people's entitlements?

Hubbard: A simple place to start would be to say, what are your principles? And if we're going to have to make adjustments, the adjustments ought to be borne by the most well-off among us, not by the least well-off. So tangibly, what that would mean for Social Security is strong minimum benefits for Americans, but very slow growth in benefits over time for upper-income households. There are many ways to do that, but most of those ways would have actuarial balance in Social Security that is not the big unfunded deficits and liabilities that we have now.

Ryssdal: Glenn Hubbard is the dean of the business school at Columbia University. He's also an occasional commentator for this program. His new book is called "Seeds of Destruction." Glenn, thanks a lot.

Hubbard: My pleasure, thank you.

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under the bush admin, our gov't increased in size, to do more monitoring of its citizens to prevent another 9/11...and that anthrax attack, which Guiliani keeps forgetting about when he claims there was no other terrorist attack after 9/11.

you want to meaningfully shrink gov't to make it more affordable? cut the expansion of DHS and other agencies created under the PATRIOT ACT et al. these cost more than the social programs, as they fall under the military budgets that ring in at more than 50% of the Fed budget. but what are the chances of the Tea Party doing that?

Commenter Grant Graessle asked for some examples of how big government is unconstitutional. Easy: Most things the federal government does nowadays are well outside the powers the Constitution explicitly grants, and thus by the Tenth Amendment explicitly unconstitutional. For instance, the Departments of Education, Labor, Health and Human Services, and Housing and Urban Development, to name just a few, are *on their face* unconstitutional, as are most of the functions of the Departments of Commerce and the Interior. "Big government" is more a way of doing things than a threshold that can be crossed. "Big government" is the idea that problems should be solved by government if possible, by the highest level of government they can, while the Constitution is designed to prevent the federal government from doing anything except what only it can.

"Seeds of Destruction" is an interesting title for Mr. Hubbard's book considering his role in the Bush Administration and his appearance in the film "Inside Job". I guess Mr. Hubbard can tell us how to fix things since he helped make them go oh so wrong?

We should all know by now that there is no one thing -- a silver bullet -- that will solve a major issue like the Economy...or the US Deficit. I believe the multi-pronged solution to the US Deficit has been identified numerous times by unbiased economists and it involves (1) reducing Defense spending, (2) reducing Medicare/Medicaid spending, and (3) increasing taxes. No one wants to deal with these relaties ... much less our career politicians. Having sold IT solutions to the Government for more many years, I watch how Government spending functions -- both at the Federal and State levels. Spending is not strategic, seldom leverages competitive pricing, and is usually highly influenced by lobbyists. This is grossly obvious at the Federal level. Entitlements are a major issue as are corporate subsidies. Our policy and funding process is severely broken and the American people are responsible for the bill. Simply put, the Federal Government has a credit card with no spending limit and bill goes to We The People.

Hmmmmm … A Bush insider talking about making government smaller and less expensive – not exactly that administration’s track record was it.

Please provide some potential meterics for "big government." Preferablly objective such as head count or budget.

And please provide some examples of how "big government" is how this "big government" is unconstitutional. Most people refere to big government as either the size of budget, or the number of regulations. And most of that is in responsive/reactive to the public's vocalizeing "There oughta be a law....". If you want a law, there is going to be people who have to enforce the law.

Re:Interview with Glenn Hubbard-Mr.Hubbard appeared to place blame for the ballooning size of government and the deficit on entitlement programs. What about the expense of our overseas adventures in Iraq and Afghanistan and the expanding role of outside contractors, who don't come cheap?

Yesterday it was one of George W. Bush's speechwriters commenting on his completely one-sided view of the election. Today it's one of W's advisors talking about his completely one-sided view of economic policy for reviving the economy. After today there will be only two more Marketplace shows before the polls open.

You're not pushing one side's view over another, are you? Rhetorical question.

Kai, seriously, this is unacceptable. Do you hate your job?

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