Dan Mitchell, a Senior Fellow at the Cato Institute, explains in the video that the key variable is government spending as a share of GDP. This ratio shows the burden of government relative to the productive sector of the economy. By this measure, both Ronald Reagan and Bill Clinton successfully restrained spending and reduced the burden of government. Capping the growth of domestic spending was the key factor.
Inflation-adjusted domestic spending increased at an average rate of less than one percent per year under Ronald Reagan, a rate much lower than the rate of economic growth. As a result, the burden of domestic spending fell by 2.5 percentage points of GDP during the same period. Bill Clinton, meanwhile, was able to turn projected deficits into surpluses by holding the average growth of domestic spending to less than three percent, while also capitalizing on the peace dividend from the end of the Cold War. By the time Clinton left office, government spending had been reduced by more than 3 percentage points of GDP.
And in Part 2,
Dan Mitchell, a Senior Fellow at the Cato Institute, explains in the video that Canada, Ireland, Slovakia and New Zealand are examples of how to solve America's fiscal crisis. All of these nations made big improvements in fiscal policy by capping the burden of government spending. In only a few years, each country was able to dramatically reduce the share of GDP consumed by the public sector while also slashing deficits, and in some cases even turning them into surpluses.