“At some point this debate is not about spending in the abstract. It’s about what the proper role of government is,” said Ed Crane, founder and president of the Cato Institute, at a luncheon held April 14 by the Yankee Institute for Public Policy.

“Somebody has to stand up and say, ‘You know what, we can save money by getting out of this business here.’”

“Milton [Friedman] always used to say that the Republicans focus too much on taxes. The true tax on the American people is the level of spending. It is the resources extracted from the private sector and employed in the public sector.”

“You should focus on spending.”

Crane said 10 percent cuts across the board is “not an argument for limited government.”

“What happened, I think, is that our side got tricked into focusing on growth as opposed to liberty,” he explained.  “Happily, there will be economic growth if you have a free society, but to focus on economic growth is a) uninspiring and b) makes you very flabby in your ability to defend limited government.”

Crane called out Speaker of the House John Boehner, an Ohio Republican, for saying he could not name a federal program to cut off the top of his head.

“And he’s only been in Congress 20 years.”

“Paul Ryan is a real hero in all this stuff,” Crane said referring to the Wisconsin Republican who chairs the House Budget Committee.

He said even Ryan is not “naming names.”                  

Off the top of his head, Crane suggested several cuts to the federal budget.

He said the Department of Education spends $100 billion while test scores remain flat.

“At some point, can’t you say, you know, this doesn’t look like it’s working. Why do we have to throw more money at it?”

“So if you don’t take a principled stand, if you don’t take a constitutional stand, at least take an empirical stand. It doesn’t work. Stop spending the money. Abolish the Department of Education.”

Crane said taxpayers could save $63 billion by cutting the Department of Housing and Urban Development, $30 billion by eliminating farm subsidies and $20 billion by matching federal salaries to the private sector.

“Actually, it’s more true at the state and local level now, as the Yankee Institute has pointed out here,” he said. “Ridiculous premiums for government workers, many of whom shouldn’t be in jobs.”

Crane said Congress should also look to save money on defense spending which could reach hundreds of billions of dollars.

“I want the strongest possible high-tech defense imaginable,” he said, adding that the U.S. already spends more than every other country, combined.

“The Pentagon’s a bureaucracy like HUD is,” he said. “And everything they want should not just be well we got to do that – and more.”

He said the military budget is driven by its missions which driven by foreign policy. “I think it’s important to have some humility when dealing in foreign affairs.”

Crane said former President George W. Bush and his advisor Karl Rove did not do a good job of selling Social Security personal accounts because they tried to scare people.

 “The way to sell social security privatization or personal accounts is two things: ownership and inheritability,” Crane said.

According to polling, Crane said, about 82 percent of Americans said individuals should own their Social Security contributions.

He said there is currently a $20 trillion unfunded Social Security liability, but that didn’t have to be the case.

“If at the beginning of the program, which never should have been started in the first place, you had chimpanzees throwing darts at the Wall Street Journal, you would today have a massive surplus in Social Security,” Crane said. “The risk is when you let politicians have at the money. That’s the risk.”

He said there are two common suggestions for fixing Social Security. Increasing the retirement age makes sense, he said, because people are living longer. Another easy fix, according to Crane, would be changing cost of living increases to match the Consumer Price Index instead of wage inflation.

Crane also criticized federal monetary policy, particularly the policy known as quantitative easing. He said QE3, following the current policy known as QE2, is very likely.

“It seems to me there’s an easy way to foresee how that is going to happen because California, Illinois, New York, Connecticut are broke and they’re bankrupt. And they’re going to go to Congress and say, ‘You got to help us out.’”

“This Congress we have in the House will say, ‘Sorry, get your fiscal house in order,”

“What will happen is Ben Bernanke will overhear this conversation and say, ‘You know what I think we can help you out here. We’ll print up some money and buy your debt.’ And then you’re going to see inflation in a big way.”

Ed Crane on American exceptionalism

Next week: Ed Crane takes questions