The illogic of cutting your way out of a fiscal mess

Political rhetoric inside the Beltway is so predictably fatuous these days, it’s easy to treat it like Muzak.   Try to ignore it until you can escape.

But every once in while, it’s worthwhile to actually listen to what those crazy kids down in D.C. say.

Last week, a representative from North Carolina, Renee Ellmers, said this: “The goal of House Republicans is not to shut down the government, but to rein in the out-of-control spending that is devastating our economy.”

Sounds plausible, right? Civil, even.

But let’s look more closely, shall we?

 According to Ellmers, the core premise of the cost-cutting Turks in the U.S. House is that domestic spending is the main culprit for our pokey economy, the reason for high unemployment and low corporate investment.

So, should we accept the premise?

First a few numbers. (I promise this won’t hurt too much.)

20 percent and 25 percent. 4.4 percent. 1 trillion.

 To explain: 20 percent is the average portion of U.S. gross domestic product that the federal government spent under George W. Bush. That number under Barack Obama now is roughly 25 percent.

So you can see how rhetoric about out of control spending arises. I’ll grant that. But let’s go deeper. A warning, we’ll have to apply logic.

First, can we agree that the economic crisis, though brewing for a while, erupted in the fall of 2008, while Mr. Bush was president? So, by the time Obama took office, the economy had already shed 4 million-plus jobs.

In 2010, as the effects of the stimulus flowed through, the number of private-sector jobs actually rose modestly.

So, to review, the rise in federal spending occurred after the crash and after the bulk of the job loss.

So how can you blame the mess on spending that occurred only after the problems flared, and that seems to have stemmed the bleeding? It’s like blaming the ambulance for the accident.

Now, big-time deficits are truly a bad idea long-term. They put us in hock to China and hobble our grandkids.

But the short-term test of deficit spending in a recession is this: Does the good that government spending does by boosting demand outweigh the harm government borrowing does by raising the cost of money for everyone else?

Cost of money equals interest rates.  So are interest rates high? Well, you can get a 30-year fixed rate mortgage at a low, low 4.4 percent.

Never mind that, the House Turks say, we need to cut taxes to spur business to invest. Well, back to the last stat: 1 trillion.

That’s how much cash 50 of the largest public corporations are sitting on right now, not investing. It’s hard to see how sending them a bit of tax money that could otherwise pay for roads, research and health care is going to change their behavior.

Deficits do need to be attacked. Neither party has shown any gumption in doing so, and when presidents even hint at the needed steps, they are pilloried from both sides.

The logical way to curb our fiscal mess is through a steady mix of raising taxes, cutting unproductive spending (both military and domestic), ending pointless tax shelters, and (the really hard one) reforming entitlements.   Hard stuff, but not impossible, if you proceed logically.

But the Turks deal in faith-based economics, not logic. Their belief in cutting spending and taxes it theological, not pragmatic.  All the rest of us can do is pray they don’t get their way.

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