The Corner

Spending Cuts: Canada’s Done It

George Mason University’s Tyler Cowen has a piece in the New York Times looking at where spending cuts took place. Canada, he says, is the place to look for evidence that it can be done. And as Tyler notes, the country remains a highly humane society.

Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997. The Liberal Party, headed by Jean Chrétien as prime minister and Paul Martin as finance minister, led most of this shift. Prompted by the financial debacle in Mexico, Canadian leaders had the courage and the foresight to make those spending cuts before a fiscal crisis was upon them. In his book In the Long Run We’re All Dead: The Canadian Turn to Fiscal Restraint, Timothy Lewis describes Canada’s move from fiscal irresponsibility to a balanced budget — a history that helps explain why the country has managed the current global recession relatively well.

But the most interesting part in this article is this:

Counterintuitively, the relatively strong Canadian trust in government may have paved the way for government spending cuts, a pattern that also appears in Scandinavia. Citizens were told by their government leadership that such cuts were necessary and, to some extent, they trusted the messenger.

It’s less obvious that the United States can head down the same path, partly because many Americans are so cynical about policy makers.

This argument reminded me of an article by the political scientists Philippe Aghion, Yann Algan, Pierre Cahuc, and Andrei Shleifer titled “Regulation and Distrust.” Using data from the World Values Survey, the authors argue that “distrust influences not just regulation itself, but the demand for regulation.” They found that “distrust fuels support for government control over the economy. What is perhaps most interesting about this finding […] is that distrust generates demand for regulation even when people realize that the government is corrupt and ineffective.”

Cowen’s piece is here. And here is a Wall Street Journal piece on how Americans are more skeptical of Washington than ever.


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