Limiting spending increases to inflation minus 1% would balance the budget in less than a decade, writes Lazear. The inflation-minus-one rule would allow us to grow our way out of our fiscal problems without taxing a higher proportion of GDP. Eventually the deficit would vanish and with taxes remaining at historic levels, there would be no impediment to economic growth. Calling for a rigid rule may seem wishful thinking, but the alternative is a dangerous false choice between high deficits and high taxes. Failing to take a stand now, Lazear argues, will condemn subsequent generations to lower living standards and fewer opportunities.
Lazear, chairman of the President’s Council of Economic Advisers from 2006-2009, is a professor at Stanford University’s Graduate School of Business and a Hoover Institution fellow.