Republicans' two-point plan to create jobs: Can it work?
Don't like what Democrats have offered so far to cure unemployment? Here's a look at the Republican plan to create jobs – and what economists think of it.
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Potential cuts, according to ideas put forward this year by Republicans within the House Budget Committee, could include canceling stimulus projects for which money hasn't yet been committed, freezing federal salaries temporarily, or hiring only one federal worker for every two who retire.Skip to next paragraph
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Supporters of a reduction in federal spending fall into two camps: those who doubt that initial rounds of spending stimulus have helped and those who say the economy is in a different place from where it was 18 months ago, with less need of temporary stimulus today and more need for fiscal discipline.
Spending cuts could help signal that Washington policymakers are starting to get serious about tackling America's long-term fiscal challenge – a persistent gap between federal spending and revenues.
Boosters of this idea also say that spending cuts might free up resources that would be used more efficiently by the private sector. "The economy will recover very nicely," albeit gradually, under Boehner's plan, predicts economist J.D. Foster at the conservative Heritage Foundation in Washington.
The case for spending cuts is partly an expression of doubt about the effectiveness of traditional stimulus via deficit spending. Researchers, including Harvard University's Robert Barro, have published studies suggesting that increased spending serves mainly to shift money around within the economy, while doing relatively little to expand the gross domestic product.
The case against spending cuts
Foes of spending cuts say the move would harm a still-fragile economy that remains at risk of falling back into recession. When the economy is weak, economists in this camp argue, government spending acts to fuel demand for goods and services, rather than "crowding out" private-sector activity.
Even those who put a high priority on repairing federal finances concur.
"We don't want to endanger the recovery," says Diane Lim Rogers, chief economist at the Concord Coalition, a nonpartisan group in Arlington, Va., that promotes fiscal responsibility. She suggests that cuts in federal spending should be avoided for a couple of years, as the economy is finding its footing.
Moreover, budget experts say, short-term cuts can't substitute for providing a credible long-term plan to deal with federal deficits. The best confidence booster for businesses and taxpayers might be to see Washington come up with fixes for long-term challenges that Boehner's plan doesn't address, such as the growing federal tab for Medicare.
Mr. Obama has created a bipartisan fiscal commission to come up with long-term proposals on spending and taxes.
Some critics of the Republican plan go a step further. They say the problem with Obama's roughly $787 billion Recovery Act stimulus wasn't that it failed to work, but that it was too small. Given the magnitude of the jobs problem, with 15 million Americans unemployed, more stimulus spending is needed to put the US economy back into gear, they argue.