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Government can be rendered more efficient by cutting out unneeded spending, as Obama suggested when he announced his choice for budget chief. It can also be improved via competitive procurement of government services, which argues for school vouchers and a cleanup of the defense-purchasing practices that allow lobbyists to skew outcomes. Social Security and Medicare must be revisited. A government that faces legitimate pressure to grow can't afford big retirement benefits for people who are too young or too wealthy to need them. Nor can it tolerate a situation in which, after adjusting for variations in demographics and labor costs, some states spend twice as much on health benefits per retiree as other states find adequate.

Market reengineering is also in order. The government should stop distorting markets by subsidizing housing finance through Fannie Mae and Freddie Mac, clinging to trade barriers, or offering tax deductions that encourage overspending on homes and health care. The tort system, an outrageously wasteful way to compensate victims and discipline firms, should be reformed. And, given the object lesson from the collapse of the Big Three carmakers, government should think carefully before empowering labor unions further.

The growth of U.S. government need not be an economic disaster. Sweden and Denmark combine large public sectors with fast growth in GDP per capita. But to get away with big government, you must have smart government. Once the financial crisis is behind us, this should be the guiding principle of the Obama years. Mallaby in OP Washington Post.
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