On Thursday, the Congressional Budget Office wrote a letter to Democratic Congressman Chris Van Hollen, responding to Van Hollen’s questions about the effect of canceling the sequester of a modest amount of federal spending for the rest of 2013, and 2014. CBO director Douglas Elmendorf wrote, in part:
In total, by CBO’s estimates, canceling the automatic spending reductions effective August 1 would increase outlays relative to those under current law by $14 billion in fiscal year 2013 and by $90 billion in fiscal year 2014.
Those changes would increase the level of real (inflation-adjusted) gross domestic product (GDP) by 0.7 percent and increase the level of employment by 0.9 million in the third quarter of calendar year 2014 (the end of fiscal year 2014) relative to the levels projected under current law, CBO estimates.
So far the CBO’s letter hasn’t made much news, but Republicans in Congress expect it to become a major talking point as the Democrats try to erase the sequester and otherwise jack up federal spending in the months to come: the CBO says that if we just eliminate the sequester, it will create 900,000 jobs!
Of course, the Democrats won’t mention that Elmendorf’s letter also says this:
Although output would be greater and employment higher in the next few years if the spending reductions under current law were reversed, that policy would lead to greater federal debt, which would eventually reduce the nation’s output and income below what would occur under current law.
Moreover, the CBO uses voodoo economics, in the form of a magical “multiplier effect” for federal spending, to consistently overstate the effect of more government spending on economic growth and employment. This is why CBO thought the stimulus bill would be a roaring success, producing three million new jobs. They haven’t yet figured out that inefficient spending destroys wealth and retards economic growth.
Van Hollen’s initiative ties in directly with the interview that Barack Obama gave to the New York Times, which Steve referred to earlier today. Obama made comments about the U.S. economy, and that of Europe, which may seem mystifying at first glance:
And one of the interesting things that we don’t talk about enough is the contrast between what’s happened in the United States and what’s happened in a lot of other developing countries, Europe in particular. It’s pretty rare where we have the chance to look at two policy approaches and follow them over several years and see which one worked. And the fact is there are a lot of European countries who followed the prescription that the House Republicans are calling for right now, and not only have they lagged well below where we’ve gone in terms of growth, in many cases their debt and their deficits have actually gone up because their economy is still effectively in recession. And although we haven’t been growing as fast as we would like, we have consistently outperformed those countries that followed the recipe that the House Republicans are offering right now.
What is he talking about? “Austerity.” In the left-wing playbook, austerity equals any effort to restrain government spending, no matter how out of control that spending may currently be. In this case, austerity equals the sequester. Obama suggests that his approach–running up trillions of dollars in debt–has proved superior to trying to get government waste under control, and looking to the private sector to spur growth. Thus, when the Democrats try to restore the minuscule sequester cuts in the coming spending resolutions, and add billions more in new spending in addition, they will accuse Republicans of following the Europeans’ supposedly failed “austerity” policies.
In the meantime, what is really failing is the American economy. There is no need to recite the abysmal numbers one more time; Obama in effect acknowledges them, as in today’s Times interview, while taking no responsibility for his own failures. It is in this respect that, in my opinion, Obama most closely resembles Jimmy Carter: he laments a declining economy as though he were a mere bystander.
As has been widely reported, Obama is trying to escape from irrelevance for the remaining years of his term by launching a PR offensive on the economy. His goal is to vastly increase federal spending, so as to make even more Americans reliant on the government. A dependent voter is a Democrat voter, Obama reasons.
Will his drive for more spending, more debt and higher taxes succeed? We should never discount the Republicans’ ability to lose when an issue comes down to legislative infighting, but Obama is fighting an uphill battle. Scott Rasmussen finds that 62% of voters think the government should cut spending to bolster the economy. Only 23% think the struggling economy should cause the government to spend more. It will take more than selective quotation from a CBO letter to turn those numbers around.