CBO's Elmendorf Teaches Tea Party Freshmen Cutting Spending Is Counterproductive In A Recession

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Can you teach a dog to fly? Not a chance, but when a tea party politician asks questions about Keynesian economics, you can at least present him with the wings of knowledge to help them take off. It's a basic principle of Keynes, that in times of economic depression, government spending is required to help stimulate the economy. Since tea party freshman, Rep. Tim Huelskamp (R-KS) is an anti-government zealot, he rejects already proven facts because his ideology requires him to bow down to conservative pressure that says government is the enemy. The CBO's Doug Elmendorf was questioned by Huelskamp about this very issue and what arises from it is a teaching moment.

Brian Beutler:

Rep. Tim Huelskamp (R-KS), a tea party-backed freshman who voted against the final debt limit bill, recently asked to hear from the Congressional Budget Office about the impact of government spending on economic growth. It's an article of faith on the right that vastly shrinking government will unleash the forces of private enterprise, and faced with CBO's opposing view, Huelskamp wanted to know the answer to two questions:

1). What current federal departments, agencies, programs, or portions thereof do not contribute to economic growth?

2). In the programs that CBO believes do contribute to economic growth, what level of spending cuts would amount to a level you believe would be significant enough to "probably slow the economic recovery"?

But if the newly elected member of the Budget Committee was hoping the non-partisan CBO would buy into his premise, he'll be sorely disappointed.

In a response letter Thursday, CBO-chief Doug Elmendorf gives Huelskamp a layman's lesson in Keynesian economics: Under current economic circumstances, new federal spending would help economic growth, and current and future cuts could stymie it, particularly if they hit key government investment.

"When demand for goods and services falls short of the economy's ability to produce them, as is the case currently, increasing government spending can increase aggregate demand and thereby narrow the gap between the economy's actual and potential levels of output," Elmendorf writes.

The precise details matter. The more robust the economy, the lower the impact. But, according to Elmendorf, "when the Federal Reserve's ability to lower short-run interest rates is constrained because those rates are already near zero, as they are currently, the short-run effects of changes in government spending on output tend to be larger than usual."

Regardless of the historical facts, conservatives are rejecting principles that have saved America before. And now we enter a very dangerous period in the viability of the country because tea partiers will not seek knowledge to educate themselves on basic economics and the health of working class Americans is at risk because of their obstinacy. It would help to have the beltway media join in this discussion and report facts already known, but instead their fall back position is to explain that a man like Huelskamp or Sen. Pat Toomey for that matter are only doing what they honestly believe in.

CNN's American Morning:

VELSHI: Senator, you come by your disdain for increased taxes very honestly. You have been doing this for years.

TOOMEY: Yes.

VELSHI: You are not pandering to a particular constituency on it, which on one level pleases us because that means that your -- you know, you're going to come by it honestly. But we need compromise on here. Are you possibly a guy that can compromise that might compromise tax increases? I mean, could you ever bring yourself to do that? I mean in that a best way

Why the honesty qualifier? Pat Toomey was the president of the Club For Growth which has a political agenda that wants to drown our government in the bathtub. And now he's on the Super Commitee that's supposed to negotiate a deal. Here's his fraudulent response to his tax cutting positions:

VELSHI: Good point. But, Senator, we have seen a tax increase in a long time. In fact, we got an extension of the Bush era tax.

ROMANS: We've been cutting taxes for 10 years.

VELSHI: And we haven't seen the job creation.

ROMANS: Right.

VELSHI: So, is the evidence that not cutting taxes creates jobs? We haven't seen it.

TOOMEY: Well, let's remember after cutting taxes in 2003, we did have a tremendous job creation. Unemployment rate dropped below 5 percent and as recently as 2007, our federal deficit under the current tax regime was only 1.2 percent of GDP, a tiny fraction of where it is now.

So, look. I think there's a lot can be done to improve the tax code, to make it more sensible, to make it more fair, to make it simpler and lower marginal rates. And if we do that we will have stronger growth and more revenue as a result

The country was living off of the housing bubble that was created by the mortgage industry at the time he's referring to along with the Bush tax cuts that has lead us to a total financial meltdown across the globe and the predicament we're now living in and his solution is do the opposite of what's required as is Huelskamp. Oye.
Back to Huelskamp:

But again the specifics matter, and if the GOP wants to slash across the board, they'll do damage anyhow.

"Some types of spending, such as funding for improvements to roads and highways, may add to the economy's potential output in much the same way that private capital investment does," Elmendorf writes. "Other policies, such as funding for grants to increase access to college education may raise long-term productivity by enhancing people's skills. The positive longer-term impact of deficit reduction on GNP would be smaller if the policies that reduced deficits included cuts in productive government investments." Huelskamp's original letter is here. Read Elmendorf's response here.

The letters stem from the below exchange between Huelskamp and Elmendorf at a recent Budget committee hearing. Elmendorf and Huelskamp are arguing two different points. Huelskamp would like to see big cuts to federal safety net programs and other spending. Elmendorf argues that while the macroeconomic consequences of slashing some of those programs might be minimal in the long run, the near-term impact would be significant, given the current downturn.

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