Today the CBO released a report that a Coming Fiscal Cliff Will Devastate The Economy. But it’s not the debt, it’s cutting spending that will cause the devastation.
A giant austerity bomb is timed to go off at the beginning of next year, and the threat of significantly higher taxes and lower spending has Republicans running around the Capitol sounding more like John Maynard Keynes than John Boehner.
Automatic, across-the-board reductions to domestic and defense spending, combined with the looming expiration of the Bush tax cuts, will dramatically consolidate the budget in the next calendar year, if Congress does nothing. And despite bemoaning deficits throughout the Obama years, the GOP’s suddenly come around to the view that cutting government spending is a job killer.
Just listen to Sen. John Cornyn (R-TX).
“Just when you thought the economic news could not get much worse with slow economic growth, with reduced wages because of higher costs, and with many people simply giving up looking for work with the lowest labor participation rate we’ve had in some time,” Cornyn warned reporters in the Capitol Tuesday, “we have an entirely predictable and preventable jobs crisis approaching in January, where because of the sequestration [automatic spending cuts], my state alone will lose 91,000 private sector jobs — and there are about a million private sector jobs at risk if the sequestration goes into effect on January 2.
This marks the return of the Defense Keynesians — Republicans who admit that government spending supports job growth in a weak economy, if and only if that spending is directed toward the military.
Contrary much of the wing-nut squawking President Obama has been one of the stingiest Chief Executives of the last 30 years, An Obama Spending Spree? Hardly.
A dominant theme of the national political discourse has been the crushing spending spree the U.S. has ostensibly embarked on during the Obama presidency. That argument, ignited by Republicans and picked up by many elite opinion makers, has infused the national dialogue and shaped the public debate in nearly every major budget battle of the last thee years.
But the numbers tell a different story.
The fact that the national debt has risen from $10.6 trillion to $15.6 trillion under Obama’s watch makes for easy partisan attacks. But the vast bulk of the increase was caused by a combination of revenue losses due to the 2008-09 economic downturn as well as Bush-era tax cuts and automatic increases in safety-net spending that were already written into law.
Obama’s policies, including the much-criticized stimulus package, have caused the slowest increase in federal spending of any president in almost 60 nears, according to data compiled by the financial news service MarketWatch.
Of course Keynesian economist Paul Krugman knows how to fix our economy.
Krugman, a Keynesian economist, said the United States should be spending more money now rather than trying to slash its budget to make up for lost revenue. The country should reduce the deficit once it had a stable economy.
“Slashing spending at times like these is a terrible thing, it makes the economy much much worse,” he explained.
“I think the way to phrase it is, this is not a stimulus — although it is — but as a ‘we need those school teachers, we need those fire fighters, we need those police officers.’ We are starving essential public services. There are potholes in our roads.”
Let’s hope the President and his reelection team are reading Krugman’s book, End This Depression Now.