Could Congress Take the Hippocratic Oath on the Economy?

February 6th, 2013 at 10:02 pm

If you wanted to be (overly) generous in your interpretation of the CBO data out yesterday, you might say that we’re sacrificing the near term for the longer term.  That is, we’re accepting lower economic growth rates and higher unemployment now in exchange for lower-budget deficits which will, according to CBO, be better for growth in the future.

Here’s how they frame the issue:

…less fiscal tightening this year would lead to stronger growth in 2013 but, if not accompanied by sufficient additional tightening in later years, would also restrain real output and income in the middle of the decade and beyond owing to higher federal debt.

I must say, though, that I find this all a bit of a muddle.  In 2013, according to the budget office, fiscal cuts—both tax increases like the end of the payroll tax break and spending cuts like the sequester (CBO assumes it will be implemented to the tune of $85 billion in cuts starting next month)—are cutting the economy’s growth rate pretty much in half, from a bit below 3% to 1.4%.

For what?  Can anyone point to anything good that’s come of that?  I’d like to say that DC’s deficit hawk community is favorably impressed, but they’re not.  The usual suspects are not assuaged and just keep complaining that we’re not doing enough to make the “hard choices” and “real sacrifices.”

The usual argument here—the thinking embedded in the CBO quote above—has to do with public borrowing crowding out private borrowing and thus leading to higher interest rates for scarce investment capital.  It’s actually hard to find convincing evidence for that relationship even in good times, but it’s impossible to find it right now, for obvious reasons.  In recessions, deficit spending goes up while weak demand and Fed Reserve actions push interest rates down.

Instead, it’s quite clear that the growth pickle we’re stuck in is not due to thoughtful policymakers making considered economic tradeoffs.  The R’s just want to hammer away at safety net programs (while protecting the wealthy from tax increases) and social insurance and the D’s—they want to “balance” spending cuts with tax increases.

And the only man talkin’ bout love right now is the preacher unemployment right now is the Federal Reserve chair.  Actually, that’s not quite fair.  The President said something yesterday about not sacrificing the recovery for arbitrary cuts, and the progressive caucus of House D’s has a plan that takes near term growth seriously.  Still, ask yourself why there are numerous big, rich organizations running around town talking about “Fix the Debt” and hardly anybody talking about “Fix the Economy.”

Neither do I mean to be cavalier about the unsustainability of the long-term budget.  But let’s be clear:  that has little to do with whacking away at WIC and Head Start or even Social Security, and a lot to do with slowing the growth of health care costs, along with raising the revenues we’ll need to support the services we all say we want.

At this point, I don’t expect DC policymakers to do much good for the economy in terms of investments in jobs measures that might actually build on what momentum we’ve got from the housing sector, autos, energy, and deleveraging households.  But—and maybe I’m naïve—I do expect them to take a Hippocratic Oath and stop screwing it up.

Congress must stop setting fiscal traps and ceiling and cliffs and sequesters.  Just leave well enough along, get out of the way, maybe do some stuff on immigration or something.  Or go back to your districts and chill out.  Just please stop with the self-inflicted wounds.  Stop.  Please.

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3 comments in reply to "Could Congress Take the Hippocratic Oath on the Economy?"

  1. Pauley says:

    I doubt they will stop because the oligorcs want to own the economy, not share it. Now, what’s that called? Orcanism… uh, fishgasm…. oh: fascism.


  2. R. Nemo says:

    Yes. This is the most bizarre congress ever. Way nuttier than Gingrich–which was insane on its face.

    I see this as the last stand of the Reagan era and like Custer at the Bighorn–when loss was certain–they will fight to the last man (idea). That idea is no revenue enhancement. And to make everyone miserable in the process!

    They have already lost two cohorts on that front; another one or two are coming. fate is coming! But their determination is bound for oblivion! So be it. But not until they take a few more hostages…

    Like Custer they are history.


  3. Stuart says:

    There are several places in the document that assert the crowding out argument directly—and the the threat of invisible bond vigilantes too. In Chapter 1, sixth paragraph, for example, they say:

    “Because federal borrowing generally reduces national saving, the stock of assets, such as equipment and structures, will be smaller and aggregate wages will be less than if the debt were lower…Moreover, such a large debt poses an increased risk of precipitating a fiscal crisis, during which investors would lowe so much confidence in the government’s ability to manage its budget that the gvernment would be unable to borrow at affordable rates.” And even more direct, in Chapter 2, page 47, they say:

    “CBO estimates that greater federal borrowing under current law…would reduce the size of the capital stock. That reduction would occur because, by CBO estimates, federal borrowing would take up a larger share of the saving potentially available for private investment.”

    Part of their estimate of increased interest rates in later years is based on that crowding-out scenario. Interesting…


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