Political Correction

No, "Every Economist" Does Not Agree With Speaker Boehner's Economic Plan

August 22, 2011 2:48 pm ET - by Jamison Foser

Rep. John Boehner

On Friday, a spokesman for Speaker of the House John Boehner (R-OH) told the Washington Post's Sarah Kliff that the super committee formed to reduce the deficit shouldn't take on job creation:

The response: Deficit reduction will spur job creation and, therefore, the supercommittee does not need to take on an additional mission.

"As every economist and every rating agency has made clear, getting our deficit under control is the first step to help get our economy growing again and to create jobs," said Michael Steel, spokesman for Boehner.

That's a concise summary of the Republican economic mantra, which has dominated the nation's approach to public policy for the last few years: The economy is bad, and the way to fix it is to cut government spending, which will create jobs. And it's almost perfect in its wrongness. Not only because the very idea of "every economist" agreeing on the color of the sky, much less the best way to cause the economy to grow, is laugh-out-loud funny, but because of the widespread belief among economists that Steel's formula is exactly backwards — that, in fact, the best way to get the deficit under control is to create jobs and fix the economy.

Paul Krugman, for example, has both a Nobel Prize in economics and a regular column in the New York Times, so we can assume the spokesman for the Speaker of the House has heard of him. Here's Krugman, just days before Steel claimed that "every economist" agrees deficit reduction is the necessary first step:

What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.

So Krugman's "first step" is more government spending, not less. Likewise, the bipartisan deficit reduction plan offered by Alice Rivlin, an economist and former director of both the Congressional Budget Office and the Office of Management and Budget, and former Republican Senator Pete Domenici featured "a big stimulus upfront to help the struggling economy."

And Christina Romer, until recently the chair of the Council of Economic Advisors, wrote in the New York Times a week ago:

It would be a mistake to respond by reducing the deficit more sharply in the near term. That would almost surely condemn us to a repeat of the 1937 downturn. And higher unemployment would make it all that much harder to get the deficit under control. [...]

The lesson here is that fiscal stimulus can help a depressed economy recover — an idea supported by new studies of the 2009 stimulus package. Additional short-run tax cuts or increases in government investment would help deal with our unemployment crisis. [...]

In place of the tepid budget agreement now in place, we could pass a bold plan with more short-run spending increases and tax cuts, coupled with much more serious, phased-in deficit reduction. [...]

Equally important, someone needs to explain to the nation and to world markets just why we must increase the debt in the short run. Unemployment of roughly 9 percent for 28 months and counting is a national emergency. We must fight it with the same passion and commitment we have brought to military emergencies in our past.

An August 12 New York Times article detailed concerns with the GOP's debt-first approach expressed by several economists:

The boasts of Congressional Republicans about their cost-cutting victories are ringing hollow to some well-known economists, financial analysts and corporate leaders, including some Republicans, who are expressing increasing alarm over Washington's new austerity and antitax orthodoxy. [...]

[E]ven before [last week], macroeconomists and private sector forecasters were warning that the direction in which the new House Republican majority had pushed the White House and Congress this year — for immediate spending cuts, no further stimulus measures and no tax increases, ever — was wrong for addressing the nation's two main ills, a weak economy now and projections of unsustainably high federal debt in coming years.

Instead, these critics say, Washington should be focusing on stimulating the economy in the near term to induce people to spend money and create jobs, while settling on a long-term plan for spending cuts and tax increases to take effect only after the economy recovers. [...]

The prospect of further reductions worries forecasters. Jerry Webman, chief economist of OppenheimerFunds, wrote in an analysis that while the cuts were not huge this year or next, "they are nonetheless contrary to what would be expected in a fragile economic environment."

In separate interviews, Joel Prakken, chairman of Macroeconomic Advisers, a forecasting firm, and Laurence H. Meyer, its co-founder and a former Federal Reserve governor, called the reductions "job-killing spending cuts" — playing on Republicans' mantra against "job-killing tax increases." [...]

In a column in The Washington Post on Friday, Bill Gross, who runs the giant bond-trading firm Pimco, lashed out at Republicans and "co-opted Democrats" for setting aside widely accepted economic theory.

"An anti-Keynesian, budget-balancing immediacy imparts a constrictive noose around whatever demand remains alive and kicking," he wrote. "Washington hassles over debt ceilings instead of job creation in the mistaken belief that a balanced budget will produce a balanced economy. It will not."

And that's just scratching the surface. J.P. Morgan says "fiscal tightening" will worsen the "negative feedback loop" hindering economic growth. Greg Ip notes, "A shift toward fiscal and monetary austerity in the United States in 1937 helped prolong the depression. Fiscal tightening helped push Japan back into recession in 1997." Jared Bernstein argues for more stimulus. Larry Summers, too. Bruce Bartlett, a policy advisor to Ronald Reagan and Jack Kemp, writes, "the important thing is for policy makers to stop obsessing about debt and focus instead on raising aggregate demand." 

Contrary to Boehner's spokesman's claim that "every economist" agrees with the need for immediate cuts in government spending, there is an essentially limitless supply of economists on the left, on the right, and in between who argue the exact opposite. Nobel Prize-winning economists. Economists who have run the OMB and CBO and CEA and Treasury Department; economists who work at investment banks and elite universities. 

There is simply no conceivable way that John Boehner and his spokesman don't know this. They must. They're lying. And it's a lie that has driven the nation's economic strategy for two years, as policymakers and politicians in both parties have prioritized deficits over jobs, with negative consequences for both. Not only does a wide array of the nation's most accomplished economists disagree with the Boehner approach, the actual results of that approach have shown it to be a failure.

The basic Republican narrative about the economy relies on telling falsehoods to support failed economic policy. Whether that's because they're stupid, malicious, or both, doesn't really matter: Regardless of their motives, their actions are clear, as are the consequences.

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