Cat Food Commission II

A few days ago (Aug 7th), Representative Allyson Schwartz (D-PA) caught my attention with the statement: “[The debt increase agreement] cuts $2.7 trillion from federal spending over 10 years, protects Medicare and Social Security, and does not harm our economic recovery.” I immediately sent her a letter, protesting that any and all cuts to government spending harmed the economy. A Republican/Tea Party Representative sent a letter to the Congressional Budget Office, asking about the effects of cuts on the economy. The CBO’s answer was:

“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.” [emphasis in blog post]

In other words, yes, cutting the budget by anything harms the “economic recovery.” Elmendorf adds that cuts “would decrease real (inflation-adjusted) gross national product (GNP) in 2012, 2013, and 2014 by amounts ranging from roughly 0.1 percent to 0.6 percent depending on the year and the assumptions used.” In other words, no, there is no “safe” level of cuts that will not harm the recovery.
Of course, this is quite significant given Cat Food Commission II, or in Senator Pat Toomey’s (R-PA) words, the “deficit super-panel,” which just finished picking its roster of persons to serve on it, is constituted to produce cuts only. Toomey himself says “I’m not interested in some kind of big tax increase; that would be counterproductive.”

Senate Minority Leader Mitch McConnell (R., Ky.), who chose Toomey, said his main criterion was finding senators “who are interested in achieving a result that helps to get our nation’s fiscal house in order. . . . That means reforming entitlement programs that are the biggest drivers of our debt, and reforming the tax code in a way that makes us more competitive and leads to more American jobs.”

So, whether Democrats agree or not, and at least some of them are in agreement with Republicans that there should be spending cuts, but no tax increases, the real problem is the Committee itself:

The super-committee itself is a profoundly conservative and anti-Democratic entity, immune from public pressure and tasked with deciding between two bad choices—a so-called grand bargain that would significantly reduce the social safety net vs. deep across the board cuts at a time of economic peril. The idea of doing anything to stimulate the economy is totally absent from its purview. The scope of the committee itself, rather than who’s on it, is the real problem.

And as to the notion that the Democrats on the Commission are flaming lefties, erm, no.

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