Tea party austerity plan: Would slashing US spending work?
Cutting $2.5 trillion in government spending over 10 years is the tea party's first step toward its 'small government' vision. Whether such measures will boost the economy or add jobs is a leap of faith, economists say.
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Many economists suggest that America's fragile recovery will be jeopardized by self-imposed "austerity economics" such as those proposed by the Republican Study Committee. The government cuts would cause layoffs in the public sector and among some private contractors, and would remove from the economy an important buttress, they say.Skip to next paragraph
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"The idea [of debt reduction] has merit, but I also think it's myopic and kind of juvenile to just pick a level that you were comfortable with before and go back to that level," says Emory University economist Thomas Smith. "The idea isn't to have crazy spending, but what's the appropriate amount of spending, and it probably isn't 'slash everything.' The idea that if we remove government from GDP that void will be filled by businesses automatically because government is somehow boxing out business spending by being a big government, the mathematics there are not that simple."
Business people and voters understand that government stabilizers are needed, especially during crises, he adds, and people's view of government is more subtle than Republicans acknowledge.
Framers of the Republican Study Committee plan see theirs as less a short-term job strategy and more about rebuilding the economy for long-term growth. The undergirding argument – that a leaner, less intrusive, and easier to predict central government is better for private investment, and thus for workers – is one that economist Allan Meltzer of Carnegie Mellon University supports.
This plan "affects people's expectations about the future, perhaps not immediately, but because you in essence tell them, 'Look, we're going to take some of these low-productivity uses the government has for the money and we're going to convert it into investment,' " says Mr. Meltzer. " 'And we're not going to tax you in the future in order to pay for low-productivity programs, because there aren't going to be as many.' Cutting the budget is not the answer, cutting spending is the answer, because if you cut the budget and leave spending unchanged people will know they're going to have to in the future pay taxes to support that spending."
Republicans who back the study committee plan have so far downplayed the potential job losses that a 40 percent across-the-board spending cut would produce, or how that would play politically. "Everything on this list [of spending cuts] pales in importance to saving the country," Rep. John Campbell (R) of California, who was endorsed by several national tea party groups in the last election, told Slate's Dave Weigel.
Mr. Obama, too, acknowledged in his address the looming budget negotiations that Meltzer says will test US leadership on all levels.
"[Obama] is putting out a package which he knows he isn't going to get through the House, and the Republicans are putting out their package knowing they're not going to get everything they ask for," he says. "Leadership consists of doing the things that people may not be convinced will be good for them ... until they see that those things are good for them. Paul Ryan understands ... that people are not going to like many of the cuts that he proposes, but he understands also that they have to be made."
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