Romney: Spending Cuts Will Kill the Economy
If you've read one Paul Krugman column, you've read them all. Alongside his unabating clarion call for ever more stimulus spending, Krugman decries spending cuts of all sizes, shapes and colors, and despises the idea of a balanced budget. This clip just about sums up his entire body of work since 2007, and encapsulates the Obama administration's approach to the economy for the duration of his term in office.
Leading the charge to slash spending, on the other hand, Paul Ryan has repeatedly made the case that we face a crushing burden of debt which must be addressed right away lest we hit the point of no return.
And where does Candidate Romney fit into the mix? Speaking today in Shelby Township, Michigan, Gov. Romney situated himself in the Krugman school of economics. "If you just cut, if all you're thinking about doing is cutting spending, as you cut spending you'll slow down the economy," Gov. Romney stated. "So you have to, at the same time, create pro-growth tax policies."
Though Krugman and Romney agree that spending cuts would worsen the economy, there is, to be sure, a major distinction between the conclusions each man draws. According to Krugman, spending cuts are bad; therefore, we must increase spending. Romney has stated that spending cuts, if not coupled with pro-growth tax policies (which he plans to outline this week, incidentally), would be lethal.
But is the underlying assumption here that spending cuts on their own would slow down the economic recovery a correct one? If Krugman, Obama, and Romney are correct on this, then Paul Ryan and his emphasis on spending cuts have been folly.
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Comments:
Oct '10
Re: Romney: Spending Cuts Will Kill the Economy
From 1945-1950, Federal spending fell from $107 billion to $45 billion. Meanwhile, Gdp went from $223 billion in 1945 to $293.8 billion by 1950.Quoting the Keynes/Hayek Fight of the Century rap video, "When that war spending ended, your friends cried disaster. Yet the economy thrived and grew faster."
Oct '10
Re: Romney: Spending Cuts Will Kill the Economy
Ok, a few points:
Deficit reduction is a tricky business. Private investment has to increase at the same rate as deficits are reduced--or, to put it another way, deficit reduction can't be faster than the rate of increase of private investment.
Edited on February 22, 2012 at 7:34amOct '10
Re: Romney: Spending Cuts Will Kill the Economy
That's a bad example. Wars produce massive pent-up demand and inflation. Private consumption and private investment rose very quickly after the war. Short of a World War III, that isn't going to happen here.
Oct '10
Re: Romney: Spending Cuts Will Kill the Economy
Well, not so much obvious as definitional, if you define "the economy" by GDP, and therefore economic growth by changes in measured GDP. But these macro measures have (increasingly) little to do with life as it is experienced by actual human beings.
Note that I'm not saying Romney is right or wrong, whatever he meant. I'm saying macroeconomics is bunk.
Apr '11
Re: Romney: Spending Cuts Will Kill the Economy
There are many problems with the conventional wisdom/ Romney/Obama/Krugman approach. Consider:
"Today (2/21/2012) , without much fanfare, US debt to GDP hit 101% with the latest issuance of $32 billion in 2 Year Bonds. If the moment when this ratio went from double to triple digits is still fresh in readers minds, is because it is: total debt hit and surpassed the most recently revised Q4 GDP on January 30,..three weeks ago. ..it has taken the US 21 days to add a full percentage point to this most critical of debt sustainability ratios: but fear not, with just under $1 trillion in new debt issuance on deck in the next 9 months, we will be at 110% in no time."
Rogoff: debt-to-GDP ratios over 90% are associated with lower growth.
Like Europe that 101% US debt/GDP ratio is a fiction. There is almost as much off the books US debt as official US debt, so the US debt/GDP ratio could be calculated around 200%.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/01/US%20Debt%20Change_0.jpg
Note the largest creditor of the US is the US (Federal Reserve)
Edited on February 22, 2012 at 11:15amJul '10
Re: Romney: Spending Cuts Will Kill the Economy
Diane Ellis, Ed.
Palaeologus:But is the underlying assumption here that spending cuts on their own would slow down the economic recovery a correct one? If Krugman, Obama, and Romney are correct on this, then Paul Ryan and his emphasis on spending cuts have been folly.
Or it means that spending cuts alone are insufficient. · 59 minutes ago
If the Republican Congress had an opportunity in the future to secure significant spending cuts without tax reform, or nothing at all, which would be the more preferable option?
Cuts.
It's hard to build a consensus for cuts, and they're needed.
Sep '10
Re: Romney: Spending Cuts Will Kill the Economy
Joseph Eagar: Ok, a few points:
Deficit reduction is a tricky business. Private investment has to increase at the same rate as deficits are reduced--or, to put it another way, deficit reduction can't be faster than the rate of increase of private investment. · 7 hours ago
Edited 7 hours ago
To date Ryan has proposed no spending cuts, merely reductions in the rate of spending increases.
Sep '10
Re: Romney: Spending Cuts Will Kill the Economy
If you accept the premise of Krugman, Obama, Bush, Romney, etc then continuing to spend and not worry about deficits is the correct response. Ryan has consistently opposed budgets that would have reduced spending and has proposed instead budgets that would have reduced the rate of increase in spending. While talking about the danger of debt, he refuses to really address it.(This may be wise politically, but makes little fiscal sense.)
Assuming the money supply remains constant no matter what policy is followed, the question becomes who can deploy capital more effectively and efficiently the government or private enterprise. The premise that is not talked about is that the Fed will increase money supply in response to more deficit spending, but would not do the same in response to spending cuts. Therefore spending produces the illusion of growth. Unfortunately government spending does little to increase the velocity of money, which is the primary driver of growth. Spending cuts in theory would make more capital available to the private sector whose investments tend to increase the velocity of money more.
May '10
Re: Romney: Spending Cuts Will Kill the Economy
Romney is against cutting spending. That is the sound bite.
Tell me again why he is so electable?
Sep '10
Re: Romney: Spending Cuts Will Kill the Economy
Entitlement reform is not merely a budget issue. It is much, much bigger than that. Medicare has to be reformed first.
Paul Ryan has a strategy to get Medicare reform across the finish line. If he is able to accomplish this, he'll have done more for fiscal responsibility in this country than anyone in your lifetime.
Carping about Paul Ryan, implying that he is part of the problem, is counterproductive in the extreme.
Nov '11
Re: Romney: Spending Cuts Will Kill the Economy
Paul Ryan is focused on cutting spending relative to GDP. The point is that we not spend more than we take in. With normal economic expansion, population growth, etc., the dollar amount does keep increasing. That's not the problem.
If we got back to a sensible proportion of GDP (which is what Cut, Cap, and Balance does) we'd be fine.
Nov '11
Re: Romney: Spending Cuts Will Kill the Economy
Bryan G. Stephens: Romney is against cutting spending. That is the sound bite.
Tell me again why he is so electable? · 34 minutes ago
He did not say that. He did not even imply that.
Oct '10
Re: Romney: Spending Cuts Will Kill the Economy
I would probably agree with Romney's statement if he had specifically said "deep cuts", and that may be what he meant. He didn't say that, though, and the cuts aren't ever going to happen if they're not a priority - cutting projected GROWTH should not need any qualifiers, it needs to happen yesterday.
Oct '10
Re: Romney: Spending Cuts Will Kill the Economy
liberal jim:
Assuming the money supply remains constant no matter what policy is followed, the question becomes who can deploy capital more effectively and efficiently the government or private enterprise. The premise that is not talked about is that the Fed will increase money supply in response to more deficit spending, but would not do the same in response to spending cuts. Therefore spending produces the illusion of growth. Unfortunately government spending does little to increase the velocity of money, which is the primary driver of growth. Spending cuts in theory would make more capital available to the private sector whose investments tend to increase the velocity of money more.
That is blatantly untrue. Most central banks will loosen monetary policy in response to fiscal tightening, to "reward" politicians for good behavior.
Sep '10
Re: Romney: Spending Cuts Will Kill the Economy
Mark Belling Fan
Carping about Paul Ryan, implying that he is part of the problem, is counterproductive in the extreme. · 1 hour ago
Almost half of the Republicans in the House back a compromise budget proposal that would have reduced spending considerably more than Ryan's They were opposed by the GOP leadership, including Ryan and the Democrats. The same was true last year. Ryan consistently supported Bush's expansion of government, supported not paying for the wars and never made a sound about entitlements, deficits and debt when the GOP was in control. If that is not being part of the problem, what is?
His original Medicare proposal while timid, did have merit, his latest one has become more timid and I suspect the trend will continue.
Ryan continually talks about the seriousness of the debt, but like almost all Republicans he is relying on growth to take care of the problem. When real growth occurs interest rates rise and the cost of servicing our debt dramatically increases which retards growth. He knows this and yet proposes adding to the debt until 2025.
Nov '11
Re: Romney: Spending Cuts Will Kill the Economy
I'm not sure exactly when Ryan started talking about entitlement reform, but he ran on it in 2008, as I recall.
He proposed a plan to cut one of the most popular benefits in the country -- something most people depend on. He did it knowing what the polls would look like, and that the Democrats would demagogue it. It might or might not go far enough, but that's not "timid."
He supported his party on some things he probably should not have. Granted. But I'm confident of the direction he is trying to take the party and the country. He is focused on what is doable. That's fine. The politics of it are such that it really would need some bipartisan support. He's made more to make actual rollback of the entitlement state possible than anyone else today.
May '11
Re: Romney: Spending Cuts Will Kill the Economy
"If you just cut, if all you're thinking about doing is cutting spending, as you cut spending you'll slow down the economy," Gov. Romney stated.
Can someone explain to me again how this guy became a leading republican?
Apr '11
Re: Romney: Spending Cuts Will Kill the Economy
Maybe we can convince the EU to take Washington D.C., New York, Illinois and California. We'd have a surplus again.
Mar '11
Re: Romney: Spending Cuts Will Kill the Economy
I hope Romney gets squashed in Michigan. Sheesh.
Does anyone here honestly think he'd govern any differently than he did in Massachusetts? This guy will abandon his own party as fast as he can if teaming up with Democrats means getting "historic" legislation passed that would put him in the history books. Romneycare isn't an outlier. It's an indication of future results.
Sep '10
Re: Romney: Spending Cuts Will Kill the Economy
Continue adding to the debt until 2025 is the best that is doable for a big government party like the GOP. Not being as bad as the Dems does not equal good. Ryan and the leadership in the GOP in the house are opposing true conservatives in the GOP and joining with the Democrats to do it. His Medicare proposal called for allowing Medicare spending to continue to grow at the current rate for another decade. He didn't even propose means testing for current recipients. He is a career politician saying what is popular in his party, as he has been doing so for almost 2 decades. His proposals sound good, but the calculations he basis his projections on are unrealistic. According to Ryan promising to do something 10 years from now is going to give us 10+ years without a recession, war or significant natural disaster. The only chance to regain some resemblance of fiscal sanity is to dramatically cut spending now, not promise to moderate the increase in spending for utopian recession free decade.