Monday, May 28, 2012

CBO Report Says Deficit Reduction Will Cause New Recession

This from the Huffington Post:
A new government report said spending cuts scheduled to go into effect in 2013, coupled with the simultaneous expiration of Bush-era tax cuts, will shrink the U.S. economy and raise unemployment -- contradicting the Republican claim that reducing the federal budget deficit will spur economic growth.
The Congressional Budget Office report, released on Tuesday, estimated that the policies slated to kick in on Jan. 1 would slash the deficit and shrink the national economy by 1.3 percent during the first half of next year, likely throwing the country over a "fiscal cliff" into another recession. 
If left in place, the current policies would reduce the federal deficit by $607 billion, or 4 percent of gross domestic product, the report said. That reduction, from immediate tax increases or spending cuts, would "represent an added drag on the weak economic expansion," the CBO noted in its report.
"The resulting weakening of the economy will lower taxable incomes and raise unemployment, generating a reduction in tax revenues and an increase in spending on such items as unemployment insurance," the report said. 
The CBO report offers a stark contrast to a standard Republican argument. While Republicans frequently target President Barack Obama for the approximately $5 trillion increase in federal debt since he took office in 2009, this report suggested that rapid deficit reduction would cause short-term harm to the economic recovery. 
Many expect Congress to act on the fiscal restraints imposed as a result of last year's failed "super committee" negotiations, prior to the Jan. 1 deadline...


Anonymous said...

I have no idea where this leaves us. So if we reign in spending we end up with a recession and if we keep spending we increase our deficet and continue the devaluation of the faith in the U.S. dollar. What's the answer?

To be honest, I think you just go with the lesser of the evils which means harming some Americans in order to salvage economic viability. The other way around leads down the path which many of the European countries are much further down than we are and as a result finding themselves in social, political and financial tormoil.

Richard Day said...

Wait a minute. Let's be clear about one thing.

It was not some kind of European socialism that has the Euro tettering on the brink. It was good ol' American capitalism. They all got caught in the same derivatives and credit default swaps that America did.

The best way to get rid of a deficit is through a robust economy. People need jobs and homes for that to happen but all of the help went to the rich guys who got us into the mess.

Is the harming of some Americans OK if one of them is you?

Anonymous said...

So it sounds like we are actually calling ourselves capitalist but with a big socialist safety net underneath which the usual big money politics manipulates to save the fat cats. I still don't know what the answer is in that I don't trust the government to regulate effectively (billions lost last week by latest bad investment) nor the fat cats to do anything but look out after themselves.

Not to sound to Jeffersonian, I can't help thinking that demoncracy is best served on a smaller scale as our federal government and probably even our state government is too large and too ineffective when it comes to accountability and service. Voters don't seem to engage unless their is a hot issue or millions of dollars spent to package a candidate and tear his/her opponent down. Maybe we deserve what we get. I would rather be left to drift through this world on my own than depend on the government. Take 10% and leave me alone as that seems to be how the fat cats get treated.

Richard Day said...

"...capitalist but with a big socialist safety net underneath"...

Yes, and that's a far cry from a free market.

I wish I shared your hope for smaller government as better government, but I see many of the same problems at the state level. Clearly, a state government is no place to guarantee citizenship rights. I also would point to the General Assembly's gradual abandonment of higher education and the lack of stewardship over our antiquated tax code and exhibits A & B.

I share your frustration.