President Obama’s former head of the Council of Economic Advisers has taken to the pages of the New York Times to warn us against pursuing “fiscal austerity just now,” particularly not spending cuts.
The Wall Street Journal provides a page of charts today illustrating the remarkable weakness of the current U.S. economic recovery. A twin story in the paper provides comments on the recovery from two of the nation’s top macroeconomists:
Despite ongoing federal deficits of more than $1 trillion a year, many liberals are calling for more government spending to “create jobs.” At the same time, liberals are opposing budget cuts because that would supposedly hurt the economic recovery. And then there is the perennial problem of Democrats and Republicans defending spending on their particular favored programs.
As we close in on congressional votes to increase the federal debt limit, negotiators are coming up with all kinds of ideas to hike taxes. (Suspiciously, they haven’t revealed very many spending cut ideas so far).
In the Washington Post Friday, Ezra Klein partly confirmed what I fear the Republican strategy is for the debt-limit bill—get to the $2 trillion in cuts promised through accounting gimmicks. As I have also noted, Klein says that there is about $1 trillion in budget “savings” ($1.4 trillion with interest) to be found simply in the inflated Congressional Budget Office baseline for Iraq and Afghanistan. Klein says, “I’m told that a big chunk of these savings were included in the debt-ceiling deal” that Rep. Eric Cantor (R-VA) and Sen. Jon Kyl (D-AZ) are negotiating with the Democrats.
With the nation's unemployment rate still above 9 percent and a steady stream of worrisome labor news (the latest statistic: 429,000 new unemployment claims last week), federal policymakers are facing pressure to do something about joblessness. The giant 2009 stimulus bill was supposed to cut unemployment to less than 7 percent by now — but that clearly hasn't worked as planned.
New projections from the Congressional Budget Office show that without reforms rising federal spending will fundamental reshape America’s economy, and not in a good way. Under the CBO’s “alternative fiscal scenario,” the federal government will consume an 86 percent greater share of the economy in 2035 than it did a decade ago (33.9 percent of GDP compared to 18.2 percent).
The National Labor Relations Board is in the news for meddling in Boeing’s decision to build some aircraft in South Carolina rather than in Washington state. To most economists, the idea that a small regulatory board in D.C. should try to centrally plan $1 billion of private business investment is crackers.
Behind closed doors, congressional leaders and the White House are discussing budget savings to tie to the upcoming vote on the federal debt limit. Republicans have promised that spending cuts must be at least as large as the debt-increase amount. Thus, if the debt limit is increased by $2 trillion to get the government through the end of 2012, policymakers need to agree on $2 trillion in cuts, probably measured over 10 years.
The House's overwhelming rejection of a clean debt-limit increase means that the two parties must now find major spending cuts. House Republicans say that they will not support a debt increase unless the Democrats agree to equal-sized spending cuts. If Congress raises the debt limit by $1 trillion, then it must also find budget savings of at least $1 trillion, over either five or ten years.