Echoes Dispatches From Economic History
A History Lesson for Entitlement Reform: Echoes
This week, House Republicans visited the White House and pressured President Barack Obama to reduce government spending as part of a deal to raise the debt limit. Everyone agrees that cutting spending will require difficult decisions on entitlements. And here is where presidential leadership is so essential -- at least that's the lesson from history as I have learned it from my colleagues, the historian David Kennedy and the budget expert John Cogan.
The relevant historical period here is the 1930s, and the president is Franklin D. Roosevelt. This may have been the only time in American history when the federal government was able to seriously cut entitlement spending. The cut was part of Roosevelt's Economy Act of March 10, 1933. Note that this predates the creation of Social Security, so the only federal pension program in existence was the military pension. It amounted to 25 percent of the federal budget, according to Kennedy's book "Freedom from Fear."
When Roosevelt was elected, he was very concerned about the deficit and the growing debt. Dealing with the deficit would require dealing with this entitlement program, but obviously cutting military pensions was difficult politically, especially during those hard economic times when veterans were marching on Washington to demand more benefits.
To get the bill passed, Roosevelt used the bully pulpit, arguing that the federal government was "on the road toward bankruptcy" and that veterans' benefits had to be cut if America was to avoid catastrophe. Without this strong presidential leadership, the Economy Act would never have passed Congress. In the ensuing years, Congress never stopped trying to reverse or get around the act. Eventually, the tide turned back -- and the large entitlement program we are trying to reform today was created.
(John B. Taylor, a contributor to the Echoes blog, is the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution. The opinions expressed are his own.)
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