This Is Why It's So Hard To Cut Public Spending

SPEAKER_2 (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:25)

Tracy, spending cuts in the air these days.

Tracy Alloway (0:30)

You could say that. It's a vibe shift.

Joe Weisenthal (0:32)

It's a vibe shift, for sure.

Tracy Alloway (0:33)

So under the Trump administration, obviously there is a stated ambition to reduce spending and make the government more efficient overall.

Joe Weisenthal (0:42)

Yeah, Scott Besson, I think he has something, the 333 plan. Part of it, I think he wants 3% growth, 3% more oil production, and then 3% deficit. And I think deficits are around 6% currently, which is really high by historical standards, especially because we're at 4.1% unemployment. Usually when the economy is running this hot or this tight, you don't expect to see deficits this large, add in rates as high as they are.

There does seem to be this impulse, for better or worse, and other people can be the judge of that, to cut spending. But on the other hand, it's very difficult.

Tracy Alloway (1:24)

Wait, why do you say that? Because early in my career, there was the Eurozone crisis. And I think there was some austerity imposed in places like Greece, ultimately. So why do you say it's difficult?

Joe Weisenthal (1:35)

So actually, there's two things here, and I think that's really apt, and I think this is a fascinating question in its own right, which is, why is it that in 2009, 2010, in the aftermath of the great financial crisis, when we had widespread unemployment, why was the appetite for austerity so high then, at a time when there was so little aggregate demand? And now, at a time when, obviously, inflation has been running hot and so forth, why does it seem more difficult? That in itself is a fascinating question. But I guess what I would say to answer your question specifically is that anytime people talk about cuts, there is not a ton of discretionary spending in the US government budget. There's the entitlement, Social Security, Medicare, Medicaid, and then there's defense, which there's usually not much political appetite to cut. And then when you have leftover, it's hard to move the dial. And so the theory is that if you actually want to move the dial on spending and deficits, you have to like cut into some areas, you have to break promises, perhaps, that you've made to various constituencies like seniors.

Tracy Alloway (2:43)

Right. Ultimately, you're inflicting pain on someone, and at least in democratic governments, because it's all about a numbers game, it's all about getting votes, that would be a bad thing.

Joe Weisenthal (2:55)

Well, we have to then talk about how do the stars align? If you actually want to meaningfully cut spending, how does that actually happen? And how do democratically elected governments sort of build the political capacity to inflict pain, perhaps, on groups that obviously have some stature? We really do have the perfect guest. We are going to be speaking with Fritz Bartel. He is an Assistant Professor of International Affairs at the Bush School at Texas A&M. And he is the author of the book, came out in 2022, The Triumph of Broken Promises, The End of the Cold War and the Rise of Neoliberalism. And it's kind of about exactly this topic, how governments break promises. So Professor Bartel, thank you so much for coming on Odd Lots.

Fritz Bartels (3:40)

Thanks so much for having me.

Joe Weisenthal (3:42)

Your book is really interesting because you talk about the sort of resource constraints and spending constraints in the US, the UK, and the Soviet Union. All of it was sort of building up to ahead in the late 1970s, early 80s. Before reading your book, that hadn't clicked to me that all of these different economies were sort of facing the same stresses at the same time. What was going on that suddenly around the world, governments felt this impulse like, we have to cut, we have to constrain ourselves?

Fritz Bartels (4:11)

Yeah. So I guess the short answer is that the kind of post-World War II economic boom had run aground in the 1970s. Obviously, there was the kind of birth of stagflation. There was a decline in productivity growth across Western economies. The Soviet economy and the Eastern Bloc, more generally the Communist Bloc, had run into the end of their growth model, kind of this hyper-industrialization growth model, had started to produce fewer and fewer results. So in both the Eastern Bloc, the Communist world and the West, the growth model, one largely based on kind of industrialization, certainly based on cheap energy resources, had started to run aground roughly at a similar kind of moments in the early 1970s. And then these crises that kind of came to define the 1970s, the energy shock of 1973, again in 1979, the monetary confusion and shocks of the 1970s, also spurred a great deal of inflation and crisis across the world. And so in both East and West, the societies had largely concluded that they did not have the resources to meet the commitments that they previously had made to their constituencies, or at least that's how it became framed and understood.