After Gramm-Rudman, Look to Spending Cap
Whether or not the Supreme Court does what ABC News said it will do and strikes down a critical part of Gramm-Rudman-Hollings, we ought to be considering further changes in the federal budget process. The prospect of losing G-R-H only adds urgency, as the lead times for any new measures would be long.</br></br>The proposals most discussed in this vein are a balanced-budget amendment to the Constitution, a presidential line-item veto, or perhaps a "son of G-R-H": reconstituting it if the court finds its present provisions invalid.</br></br>From the standpoint of sustaining long-term economic growth, none of these measures holds as much merit as requiring that the rate of growth in total federal spending should be no greater than the rate of growth of the gross national product. This rule would prevent the ratio of government spending to GNP from rising, as it characteristically has in the past.</br></br>Two central facts provide support for focusing on total spending as opposed to budget balancing or piecemeal paring.</br></br>First, a significant negative relationship exists between the rate of economic growth and the size of the government sector (as measured by government spending as a ratio to GNP, or by the tax take as a ratio to GNP). Depending on which measure of government size is used, as well as a number of other factors (for example, the particular countries and the time period considered), research done both at Rand and the World Bank suggests that for each increase of 1% in the size of government, long-term economic growth decreases between 0.1% and 0.6% annually in both developed and developing countries.