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What the president’s economic report leaves out

The report by the president's Council of Economic Advisers makes no mention of 'tax reform' or 'entitlements.'

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Now take it in reverse, because in this economic report the Obama Administration is trying to make the case for deficit-financed ‘investments”–all those things that fall under the “innovating, educating, and building’ umbrella–as investments that are good for economic activity. I don’t dispute that those types of spending and tax cuts will generate specific types of economic activity that otherwise would not have happened. But it is another matter entirely whether those investments will pay off so well that they will grow the economy even net of the negative effect of higher budget deficits on national saving. When you borrow to finance an investment, you start off in a hole. To end up better than before you have much further to climb.

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Many of these ideas the Obama Administration has for new spending and tax cuts to encourage certain investments in our economy are good ones. But whether they are good enough to overcome the handicap of deficit financing, I’m not so sure. (Some of you might recognize that these deficit-financed investments are destined to generate the Democrats’ version of the Republican push for “dynamic scoring” of deficit-financed tax cuts.) A far surer payoff could be had if instead of deficit financing these investments we paid for them by reducing the types of federal spending and tax cuts that are much less productive uses of our precious resources.

For the President’s economists to not explain that deficit financing tends to reduce, not increase, national saving and economic growth–in a report which purports to address the central question “how can we best grow the economy?” no less–is extremely disappointing and even, I think, dishonest.

What happened to the Austan Goolsbee (now President Obama’s chair of the CEA) who wrote this just 4 years ago?

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