Cutting Federal Spending Will Cut Jobs
Posted by Michael A. Kamperman on September 21, 2010
In a not-too-shocking-poll 60% of Americans believe that cutting federal spending will create jobs by freeing up the private sector. They could not be more wrong. It is true raising taxes will hurt the economy. But increasing spending and raising taxes are not synonymous, a fact lost on many. And since interest rates are near zero federal spending is not raising borrowing costs. For discussion purposes I will ignore Social Security, because there is no chance the Congress will vote to cut current Social Security checks no matter who wins the election. We will also ignore interest on the debt, which will not be cut by Congress. I will place everything else on the table. If Medicare is cut it will cost good-paying private sector health-care jobs. If defense is cut it will cost good-paying private sector manufacturing jobs as well as government jobs (soldiers and support staff). If we close the Department of Education it will cost government jobs. The point is no matter what the federal government cuts it will cost jobs. Increasing unemployment and lowering aggregate demand in a depression will simply not create jobs. It is a myth the populous will become more confident if federal spending is cut spurring private sector job creation. More foreclosures and more unemployment will make almost no one more confident. The real question is why have so many Americans come to believe such a false-hood?
The blame rest squarely at the feet of the Whitehouse economic team. They botched the stimulus plan making it poorly targeted and entirely too small. Then, they botched communicating its benefits by over-selling job creation and then claiming that saving jobs is equivalent to creating jobs. Furthermore they failed to articulate the need for further signifcant stimulus. Everything they now propose is at the margins.
The reason is President Obama, law professor from the University of Chicago, is a closet disciple of the austrian school of economics. At yesterday’s town hall meeting on CNBC he revealed his true beliefs. He believes everything needs to run its natural course and that only time will heal the economy. He balances this view with the political reality that people are hurting and he needs to be seen as trying to do something. He is wrong. The power of the Presidency could change the outcome of the economic downturn if the office-holder believed that it could. There is no limit to how much the federal government can spend, or print, if need be. He doesn’t believe that. He believes the deficit is more important than unemployment. Actions and attitudes speak much louder than words. President Hoover-Obama has thrown in the towel on having the federal government do anything significant to revive economic growth. He believes we should be patient. Maria Antionette said ”let them eat cake” and President Obama says let them eat off food stamps. Meanwhile, he enjoys the creations of the Whitehouse Chefs.
