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CBO: Stimulus Now

The CBO definitely put their thumb on the scale with their long-term budget analysis yesterday. They admitted that, under current law, there would be very little long-term budget problems, but under an invented “alternative” scenario, where Congress spends more and taxes less, we’d have trouble. Some of those alternatives were accurate (the Congress will never let the middle class get affected by the AMT), but some of them were ridiculous: CBO assumed, for example, that none of the cost savings from the Affordable Care Act would go into effect. This certainly generated the desired headlines – “Long-Term Budget Nightmare!” – but it wasn’t based on any evidence, and seemed pretty nakedly political.

On another point, however, CBO played it straight. They acknowledged that short-term stimulus spending has nothing to do with the long-term budget outlook.

The GOP argues that the national debt precludes any steps to boost the economy, with Senate Minority Leader Mitch McConnell (R-KY) accusing those who want to continue fiscal stimulus of “fiscal recklessness.” However, today, Doug Elmendorf, Director of the non-partisan Congressional Budget Office, said that there’s simply no contradiction between advocating short-term stimulus spending and evincing a concern for addressing long-term deficits:

“There is no intrinsic contradiction between providing additional fiscal stimulus today, when unemployment is high and many factories and offices are underused, and imposing fiscal restraint several years from now when output and employment will probably be closer to their potential,” said Congressional Budget Office Director Douglas Elmendorf…He cautioned that he wasn’t advising Congress on what approach to take, but said it was “important to understand the difference between the effects of government borrowing for a limited period when the economy is weak and [borrowing] for indefinite periods when the economy has recovered.”

In fact, austerity budgets would actually make it more difficult to pay off the debt in later years. Austerity during a downturn reduces jobs, which cuts revenue and widens the deficit. It’s the exact opposite scenario of what the deficit-cutters promote. Jon Cohn has more on this at his new blog.

Of course, this actual economic analysis won’t cut any ice with ridiculous people who think that the mega-rich suffered and now it’s the turn of the masses. Indeed, at yesterday’s cat food commission meeting, Erskine Bowles just decided that 21% of GDP is the upper limit for spending in the United States, based on nothing. What’s not reported here is that David Walker, Pete Peterson’s main lackey, testified that the spending cuts and tax increases should begin when unemployment lowers to 7%, with the implication being that 7% unemployment, a historically very high number, is the new normal in the country.

That will be the new normal, if elites continue to ignore basic economics.

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David Dayen

David Dayen