That’s all well and good, but as “reasonable economist” Alan Reynolds at the Cato Institute wrote last year, Zandi’s estimates are based on an unproven Keynsian multiplier effect. He simply takes the amount the government spends, multiplies it by a number, and thus obtains a positive number. The formula predicts that government spending will grow an economy, even though the stubbornly high unemployment rate argues otherwise.
Further, “recent academic studies of real world events have been unable to find a multiplier effects even half as large as Zandi’s model assumes,” Reynolds wrote at The Daily Caller. “They find the addition to GDP [Gross Domestic Product] is significantly smaller than the addition to the national debt -- a bad bargain indeed.”
If deficit spending was effective at creating jobs, the economy ought to be soaring. After all, President Bush’s final year in office was marked by a $400 billion deficit. In Barack Obama’s first year, domestic discretionary spending (including stimulus funds) jumped 80 percent over those 2008 levels. “The record $1.6 trillion in deficit spending over the past fiscal year would have already overheated the economy” if Zandi’s model worked, Brian Riedl of The Heritage Foundation wrote in 2010.
Marcus also says Boehner is wrong when he says that: “The truth is we will never balance the budget and rid our children of debt unless we cut spending and have real economic growth. And we will never have real economic growth if we raise taxes on those in America who create jobs.”
“Never?” she wonders. “Under President Clinton, taxes were raised, primarily on the wealthy. During the eight years of his administration, the economy grew by an average of close to 4 percent.” Tax receipts did climb during the late 1990s, but that was mostly because of the dot.com bubble.
When that popped, our economy plunged into recession. “This was a prewar-style recession, a morning after brought on by irrational exuberance,” liberal economist Paul Krugman noted in 2002. “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
That housing bubble didn’t end well, of course. And our current level of government spending can be fairly described as a bubble, too. Eventually borrowers will stop lending our government money. At that point it won’t matter whether the government increases its debt ceiling. It’s a bubble we cannot afford to allow to pop.
The best way to start solving our problems is by reducing federal spending without increasing taxes. Our government has a spending problem. Boehner’s correct. It’s time to start cutting.