What “cutting spending” means

Can we just think for a second about Republicans’ plan to “fix” the economy? You know what their plan is. Republicans say we need to lower taxes on the rich (not the poor) and cut spending to create  jobs. Recently, their efforts have been directed toward cutting government spending. And I’m not talking about the old “cutting waste, fraud and abuse” line that every politician uses compulsively. That’s important but its not what Republicans want to do. They just want total government spending cut down.

Here’s  the big question: how does cutting spending create jobs? The thing is, when you cut funding for NPR, the EPA or what have you, that means that the EPA has to cut its budget and Joe the EPA guy loses his job. How does firing Joe help other people get employed?

Its pretty clear how firing Joe hurts other job-seekers. They now have to compete against one more person for their next job! How does the government firing Joe help Best Buy, for instance, hire more workers? Again, its pretty clear how firing Joe will hurt Best Buy. Joe was going to buy a new plasma screen TV for his family, but now that he’s laid off he can’t afford it anymore. I’m seeing plenty of ways that firing Joe and his 1,000 EPA buddies will hurt the economy, so how would it help the economy?

In the GOP’s weekly address on April 23 of this year, Sen. Mike Johanns tried to explain how cutting spending (firing people) would somehow help the economy:

The current record-setting deficits – and the $14 trillion plus in accumulated national debt – are serious impediments to job creation because they have a ripple effect right to Main Street.

Our job creators can’t thrive in an environment where creditors pull back because of our government’s debt, because without credit, small businesses can’t grow.

Our debt threatens to devalue the dollar which will lead to increased costs and interest rates, which has a chilling effect on small business growth.

Ah, so that’s  how firing government workers will somehow “create jobs.” Republicans are saying that, in a roundabout way, eliminating government jobs will “create” jobs in other sectors because our debt is keeping businesses from hiring. Apparently, investors don’t want to lend money and our debt is causing high interest rates. This is what Johanns says is hurting growth. Of course, that’s all nonsense.

from The Washington Post/Ezra Klein

The graph on the left shows what kind of interest rates the US government is paying on its debt. Johanns says that our large amount of debt should be leading to “increased costs and interest rates.” What we are seeing is quite the opposite. Currently, the US has record low interest rates on its debt. How low? Well, once those lines on the graph go below zero, that means that investors are actually paying the US government to hold their money. You read that right. Right now investors want to buy the US government’s debt so badly that they are willing to actually pay the government for the opportunity to hold its debt for a few years. This is the exact opposite of what Johanns says should be happening.

So now we’re back to the start. How does cutting government spending help the economy? It doesn’t. It hurts the economy because cutting government workers just adds more bodies to the legions of the unemployed. Increasing unemployment right now is an economic recipe for disaster. Cutting spending will not lower interest rates (they’re already below zero, how much lower can they go?) or help anybody on “Main Street.”

Cutting spending is not an economic plan. It is an ideological position. If you favor reduced government spending, that’s fine. Just don’t pretend that it will create  jobs. Republicans’ plan will just put more people out of work, take money out of consumers’ hands, raise the number of people drawing unemployment benefits, and increase the number of people looking for even more scarce jobs.

  1. September 2nd, 2011

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