Wednesday, March 09, 2011

Stupid stunts

David Leonhardt is alarmed by "legislatures at the state and local level" cuts to spending at a time of fragile recovery.

I understand that Republican leaders honestly believe that spending cuts will help the private sector recover. Over the long term, they’re right that much of government needs to become more efficient. I’d just implore them to look at the evidence about the short-term effect of cuts.

Interest rates on corporate borrowing remain historically low, so there is no reason to think today’s government borrowing is making it harder for companies to borrow. The countries that have tried austerity (England and Germany) are struggling, while the leaders of the country that enacted the most aggressive postcrisis stimulus (China) talk proudly of its success.

Perhaps most persuasively, the people who get paid to make economic predictions say that federal cutbacks would harm the economy this year and next. The research firm Macroeconomic Advisers estimates that the House Republicans’ budget would raise the unemployment rate by 0.3 percentage points — which means about 500,000 lost jobs — by the end of next year. Economists on Wall Street, which isn’t exactly thrilled with the Obama administration, have made similar forecasts.

Nigel Gault, chief United States economist at IHS Global Insight, puts it this way: “I wouldn’t be cutting spending over the rest of the fiscal year, because the economy still needs support.”

"Imploring" Republicans to enact sane policy may be the funniest thing I've heard all day. That said, Leonhardt is right in saying that the Obama administration needs to engage in this fight as well. Meeting Republicans "half way" is a fools' game. And if they are buying GOP arguments that "the American people" want deficits reduced instead of lower employment, than I don't know who's doing their polling analysis.



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