Scontras' Spending Cuts Would Hurt The Economy

October 21, 2010 3:21 pm ET — Jamison Foser

We've already seen how the draconian cuts to programs like Medicare favored by Maine Republican congressional candidate Dean Scontras would affect seniors and children.

But the deep cuts to government spending Scontras backs would also have a devastating effect on the already struggling economy.

Dean Scontras

See, the problem with the economy is that there isn't enough demand — people and business aren't spending, which means there's lower demand for goods and services, which means there's lower demand for workers who provide goods and services, which means there's fewer people with jobs, which means there's lower demand for goods and services ... and so on.

So what happens when you slash billions of dollars in government spending, as Dean Scontras wants to do? By definition, it means that there's even less money in the economy, which means even less demand and a weaker economy.

That's why economists say food stamps are one of the most effective forms of stimulus out there: they efficiently pump money into the economy, increasing demand, because you know the recipients will spend them rather than saving them (unlike, say, tax cuts for the rich). Moody's Mark Zandi, an economic adviser to John McCain's presidential campaign, put it simply: "extending food stamps are [sic] the most effective ways to prime the economy's pump." And food stamps not only help the economy, they help keep kids from going hungry. But Dean Scontras supports a plan to eliminate food stamps. That's bad for the economy and bad for hungry kids. (Meanwhile, according to Zandi, corporate tax cuts are among the least effective forms of stimulus — and yet Dean Scontras wants to cut corporate taxes.)

So Scontras' cuts to food stamps and Medicare and student loans and countless other programs and services would directly reduce the amount of money in the economy. And there would be ripple effects: There'd be a whole lot more unemployed people (the government employees laid off as a result of his cuts) not spending money. And all those college-aged kids who can't afford college without student loans? Suddenly they aren't going to college, they're looking for work. And not spending money. That's bad for the economy.

It should be noted that the stimulative benefits of government spending during difficult economic times are not particularly controversial. John McCain's economic adviser has made that clear. And so has David Walker. David Walker is the former Comptroller General of the United States. Dean Scontras regularly cites Walker as an influence. In this May 20 speech, for example, Scontras spoke at length about how Walker had "inspired" his candidacy. Scontras began his October 11 appearance on CNBC by again saying he was "inspired" by Walker. Here's another example. And another. Point being: Dean Scontras clearly finds David Walker credible.

So here's what David Walker has to say about government spending in a struggling economy:

To stimulate the economy and shore up confidence, deficit spending can be a necessary tool if it is temporary, properly designed and effectively implemented. [...]

Over the next 12 months, we need to start ramping up efforts to mitigate the effects of high unemployment. The Senate's eventual extension of unemployment benefits in July was a good start. Since households receiving unemployment tend to spend it quickly, unemployment benefits can help companies hire new workers due to increased demand for their products. [...]

Over the next few years, the government should consider making targeted infrastructure investments to keep America moving forward as the administration and some bipartisan advocates have repeatedly suggested. These could include updating transportation networks to address urban sprawl, traffic congestion and environmental concerns, creating new infrastructure for broadband and high-speed rail, and creating a distribution system for new and existing forms of alternative energy. In other words, we should pick projects with an eye toward maximizing the potential return on investment, avoiding cost overruns and targeting sectors that benefit the most people, create the most jobs and help our future competitive posture, such as moving the nation toward a clean-energy economy.

And yet during that same CNBC appearance in which Scontras cited Walker as an "inspiration," Scontras opposed government investment in infrastructure:

MR. KUDLOW: Dean, earlier this morning, President Obama speaking in the White House Rose Garden announced, again, his idea for a national infrastructure bank, a federal bank to promote infrastructure. Do you have a thought on that?

MR. SCONTRAS: Yeah, I do, you know, again, it always sounds nice when the government starts picking winners and losers, but as you said prior, you only need to look at Freddie Mac and Fannie Mae. It was an enviable task by the federal government to want to get people into homes. ... Every time we see the government get involved in the industry, although it's very well-intended, they seem to have a bad impact on the industry they're trying to help. So we've seen it happen in housing. We're going to see it happen in finance. I think we need to keep them out of energy and the idea that they can create jobs in infrastructure as well. If something can survive on its own merits in the free marketplace, it should do that.

And Scontras writes on his web site under the heading "The Right Financial Fix":

Economists, accountants, and even voters agree: raising taxes, increasing zregulation, and encouraging government involvement in the economy are no way to build a sound economic foundation for America. Yet career politician after career politician, with no better solutions than "more government" in their playbook, continues to promote more and more spending.

Maybe Scontras should spend a little less time talking about David Walker and a little more time listening to him.