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My friend and fellow reformocon Jim Pethokoukis of AEI has a column today lambasting the Tea Partys Penny Plan to shrink the size of government. On this score I think hes misguided.

First, heres how he describes the plan:

the Penny Plan would cut government spending by 1 percent a year until the federal budget is balanced. After that, federal spending would be capped at 18 percent of GDP, to match the long-term revenue trend.

Sounds simple enough, right?

Pethokoukiss criticisms fall on three axes:

Lets take these one at a time.

First: Jim says that underRep Mike Enzis version of thePenny Plan, once you factor in inflation, that works out to a 10 percent cut in real terms after three years. I honestly dont understand how the math works, here. With nonzero inflation, a cut that stays constant in nominal terms should get less punishing in real terms as time goes on.

I think Jim and I would agree that reductions in government spending shouldnt happen in a vacuum, and that they should be counterbalanced bygenerous monetary policy. I think theres a very strong case to be made that the Sequester (remember that?) was much less punishing that anybody thought precisely because of Fed easing. It seems to me that in the right conditions a 1% cut per year isnot a crazy goal.

Second: I think everybody would agree with Jim that its unrealistic to expect the government to spend just 18% of GDP given the current state of entitlements and demographics.I also think Jim would agree that US entitlements need to be reformed, and I think many in the Tea Party would like to see that happen. I think Jim also agrees that political forces on the right should work very hard to make sure US Federal government spending doesnt durably expand beyondhistorical levels. This isnt going to happen unless we reform entitlements (and military spending; and much else); but setting a goal can be a useful way to figure out the way to get there.

Which brings us to the third point: no, the Penny Planisnt a point-by-point government-shrinking plan. But thats not what it sets out to be. I think Jim will agree that its a lot easier to find people who can talk a good game about shrinking government than to find people willing to actually do it. But thats precisely why the Penny Plan is so important: it actually sets specific, achievable goals. Itsonce those goals are set that the legislative and executive are forced to come up together with creative solutions to achieving it. This must mean entitlement reform; it must mean (especially) consumer-drivenhealthcare reform that can bring down costs; it must mean an overhaul of our defense strategyanda professionalization of the Pentagon so that the US military is both more effective and leaner; and finally, it must mean looking at potential productivity gains (which are almost certainly massive), pork (farm subsidies) and nonsense (Homeland Security) in discretionary non-defense spending. Jim is right: thats the debate we need to have; but well be much better about it once we haveset ourselves a goal on achieving it.

Originally posted here:
Is The Tea Party's Plan To Shrink Government So Bad?