About a month ago, Douglas Elmendorf, director of the nonpartisan Congressional Budget Office, explored in some detail the economic effects of budget cuts and debt-reduction efforts. While he conceded that smaller deficits in the medium and long term could improve economic output, Elmendorf added that in the short term, with a weak economy, cutting spending “would decrease the demand for goods and services even further and thus reduce economic output and income.”
Despite the significance, this generated almost no attention whatsoever. Indeed, it appears members of Congress missed the news entirely.
Take Rep. Tim Huelskamp, a Kansas Republican, for example. The Tea Party-backed freshman sought the CBO’s take on the ways in which government spending affected economic growth. Huelskamp asked because he assumed he knew the answer; more public investments = worse economy.
Imagine the far-right congressman’s surprise when Elmendorf had to once again explain the economic basics — Huelskamp’s assumptions are backwards.
“When demand for goods and services falls short of the economy’s ability to produce them, as is the case currently, increasing government spending can increase aggregate demand and thereby narrow the gap between the economy’s actual and potential levels of output,” Elmendorf writes.
The precise details matter. The more robust the economy, the lower the impact. But, according to Elmendorf, “when the Federal Reserve’s ability to lower short-run interest rates is constrained because those rates are already near zero, as they are currently, the short-run effects of changes in government spending on output tend to be larger than usual.”
What the CBO chief offered was, in effect, a lesson on Economics 101, written for a remedial student.
The underlying point that stood out for me, however, is the fact that Huelskamp asked for the CBO’s take in the first place, falsely assuming the CBO would back him up. I imagine the right-wing lawmaker planned to wave around Elmendorf’s letter, saying, “See, Democrats, even the CBO agrees spending is bad.”
In other words, Huelskamp, unfortunately, is so far gone, he actually believes his own ridiculous talking points. He’s not just spewing economic gibberish to satisfy the base; this guy thinks the gibberish is true.
Somehow, I’d find it more comforting if these guys were just cynical hacks who knew better. Isn’t that preferable to having fools writing federal laws?