Economics, Taxes and Spending

More stimulus now, spending cuts later?

Former Obama budget chief Peter Orszag:

Additional stimulus is required because the labor market remains extremely weak. Delayed deficit reduction is also needed to reduce uncertainty over how the federal government will navigate its perilous fiscal path — and to boost the chances of enacting more stimulus despite the looming debt limit. … Those who are most concerned about the weak labor market should be most willing to do whatever it takes — including combining delayed budget cuts with stimulus — to get the most stimulus passed. And those who favor a combined approach shouldn’t be characterized (as I have been) as pro-austerity and anti-stimulus. If anything, proponents of the combined approach seem to be the only ones with even a remotely viable approach to getting substantial additional stimulus.

Likewise, those who are most worried about our long-term fiscal health shouldn’t fret too much about additional stimulus today, if it is combined with future budget cuts. Stimulus now would have only a modest long-term impact on national debt. So if it can lead to a deal, while also easing short-term pain from unemployment, what’s not to like?

This is another version of the “fiscal space” idea. If longer-term structural reforms were made to entitlements, it would free up space today for more stimulus, be it more spending or tax cuts. Orszag’s addition is to point out some historical evidence that suggests future Congresses can be relied on to stick with the cuts.

So what is Orszag’s offer? Stimulus 2.0 in exchange for Ryan’s premium support Medicare plan? Block granting Medicaid to the states? Oh, and can the stimulus include a deep and permanent corporate tax cut? I would like to hear what Orszag has in mind.

4 thoughts on “More stimulus now, spending cuts later?

  1. Sure – same old, same old…
    If there is no way to force a future Congress to in fact “make cuts”, there is no way this will work. Plain and simple.
    The American people have NO faith in the US Congress to do anything but that which feeds their re-election purses and prospects.
    Term limits and public (limited) funding of election campaigns – and then we’ll talk.

  2. Pethokoukis’ belief, that fiscal contraction is actually expansionary because it improves confidence, is precisely the doctrine expounded by Herbert Hoover in 1932. Three independent fact-checking organizations (, Politifact, and The Fact Checker) have all ruled as “false” the assertion that the stimulus didn’t work. The CBO said 2.5 million jobs were created; IHS Global Insight: 2.45 million; Macroeconomic Advisors; 2.3 million. Moody’s 2.5 million; Council of Economic Advisors: 2.5 million. And it’s not just Peter Orzag; here are some folks you might recognize who support stimulus now and oppose premature austerity: Bruce Bartlett, one of the chief architects of Ronald Reagan’s 1981 tax cut; Bill Gross, co-founder, PIMCO, the largest bond manager in the world; Jan Hatzius, Chief Economist, Goldman Sachs, Richard Bernstein, former Chief Investment Strategist, Merrill Lynch; Jeremy Grantham, GMO; Felix Zulauf, Barron’s Roundtable member and former Chief Investment Strategist, UBS AG; Ray Dalio, founder, Bridgewater; Mark Zandi, Chief Economist, Moody’s Analytics; David Kelly, Chief Investment Strategist, JP Morgan Funds; Ken Rogoff, former chief economist, IMF; Ben Bernanke; Stanley Collendar, former director of federal budget policy for two major international accounting firms, Price Waterhouse and Touch Ross and author, The Guide to the Federal Budget. This is a small sampling, but you get the idea. Go back and listen to all the interviews on “Bloomberg On The Economy”. 95% of the guests who run big money at leading institutions were in favor of the stimulus. There’s a good and simple reason for that — it’s Economics 101. Austrian economics/Hayek is promoted in only four universities: George Mason University, Loyola University New Orleans, and Auburn University in the United States and Universidad Francisco Marroquín in Guatemala. The reason 99% of universities don’t promote it is because the evidence for it is weak. Nearly all of the world’s central bankers are Keynsian. Spend now, while the economy is weak, and cut later, when the economy is stronger. What’s so hard to understand about that? And, of course, the yield on the 10-year U.S. Treasury note today, 1.76% (very cheap borrowing indeed)is telling you that the stimulus side has it right, as it has for all of the last three years. Inconvenient, indeed.

  3. I know how he feels if I lose my job my insurance is gone too. But people should know about “Penny Health” and also if you dont have means of paying for treatment the hospital will file the form and get reimbursed by medicaid.

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