GOP leaders refuse to back off on making big cuts in federal spending despite Democratic warnings that the double whammy of rising gas prices and reductions in spending could hurt the economy.
“The American people want us to focus on creating jobs and cutting spending,” House Speaker John Boehner told reporters Wednesday. “And passage of this short-term spending bill . . . shows that we're listening to the American people.”
But Democrats and some analysts are pointing to spiraling gas prices to warn that ratcheting back spending could be dangerous.
“How many American jobs are Republicans willing to destroy?” demanded Jon Summers, the spokesman for Senate Majority Leader Harry Reid, D-Nev., after Federal Reserve Chairman Ben Bernanke testified again Wednesday before the Senate Banking Committee.
Bernanke rejected warnings from Keynesian-leaning economists that the GOP cuts could cost the economy 700,000 jobs. Indeed, Bernanke sounded like a broken record in his Hill testimony Wednesday, repeatedly telling lawmakers that they must do something about out-of-control deficit spending.
“We do need to move to provide confidence to lenders that we will control our deficits over time,” the Federal Reserve chairman said.
CNBC “Squawk on the Street” co-anchor Mark Haines, however, warned on MSNBC’s "Morning Joe" program Wednesday that the economy would be “badly hurt” if budget cuts occur when gas prices are rising due to instability in the Middle East.
“In my opinion,” Haines said, “this is exactly the wrong time to be doing that. And the reason is this: Oil at $100 is like a big tax increase for American consumers. Now on top of that you’re going to cut back government spending. The economy’s going to be badly hurt by that combination.”
But former House Majority Leader Dick Armey, the FreedomWorks chairman and tea party icon, tells Newsmax that those fears are based on a faulty economic premise. Armey says Keynesian economic theories, which the left uses to justify government expansion whenever the economy sputters, stem from a bygone era and no longer reflect modern economic realities.
“Keynes’ whole work was based on a balanced budget with modest temporary deficits. And it was based on a government that was about 17 percent of GNP,” Armey tells Newsmax. “Now we’ve got a government that’s close to 24 percent of the GNP, with a debt that outstrips what we spend on discretionary spending.
“So the fact of the matter is that the single biggest problem that beleaguers this country is the size of the federal debt — and for that matter the size of the state governments as well,” said Armey, who taught economics at North Texas University before entering politics.
Armey’s view is hardly news to Stephen Moore, a member of The Wall Street Journal’s editorial board and the newspaper’s senior economics writer. Like Armey, Moore sees reducing the size of the federal government as essential if America is to emerge from its chronic, lingering joblessness.
“Spending cuts are like a tax cut for Americans,” Moore tells Newsmax. “Cuts in inefficient spending stimulate the economy by freeing up private resources for investment and hiring.
“The same flawed models that predicted 3 million jobs from stimulus, now use those same discredited models to say cuts will cost jobs,” Moore adds. “They were wrong then and are wrong now.”
President Barack Obama's budget proposals would result in a $1.5 trillion dollar deficit in fiscal year 2011, according to a Congressional Budget Office analysis — and many economists see that as an optimistic number. There’s no end in sight either: Deficits are projected to be $1 trillion or more each year through 2020.
Considering that ugly fiscal reality, Cato Institute economist and tax policy expert Chris Edwards tells Newsmax that backing off on budget cuts due to high gas prices would be “completely absurd.”
Edwards notes that annual federal spending has increased $1 trillion in just the past five years — a pace no one considers sustainable.
“The supporters of the stimulus have gotten us deeply into debt, and they don’t seem even slightly embarrassed by their economic misjudgment,” says Edwards. “There’s always going to be an excuse for not cutting spending. We’re just impoverishing the next generation by not getting on with the cuts.”
Edwards advocates renewed drilling as a way to increase U.S. oil production and stimulate job creation for economically depressed Gulf Coast regions. But the Obama administration has only approved one deep-sea drilling permit since the Deepwater Horizon rig blowout in April 2010.
Edwards, Moore, and Armey say that GOP budget cuts will help rather than hurt the economy.
“The budget cutting is good for the economy,” Edwards says. “The $60 billion [in cuts] is good for GNP. So I completely reject that assumption.”
Boehner, meanwhile, scoffed at the notion that a government shutdown over spending could be in the works. “There's no threat of a government shutdown,” he said. I've been reading this for weeks, and I chuckle.
“Our goal was never to shut down the government. Our goal is to cut spending. We're listening to the American people. They don't want the government shut down. They want us to cut spending, and that's what we're going to do.”
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