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Republican Economists Stumble Over Truth Then Leave it Behind

photo: michaelgoodin via Flickr

Today’s Washington Times, an ultra-conservative paper, has this astonishing headline: Recovery slows down as stimulus funding expires,

The U.S. economic recovery downshifted dramatically this spring as various stimulus measures enacted by Congress ended or started to wane.

The sudden softening of growth, which also coincided with the outbreak of a debt crisis in Europe, is prompting many economists to caution against withdrawing stimulus too soon, and some are even calling for another round of government action to prop up the economy for a while longer.

As astonishing as it is to see a reality-based article in the Washington Times, there is more. This, from the story,

Republican economists say that more stimulus spending is not the answer.

They say small businesses, which ordinarily do the most hiring in the U.S., have been spooked by the heavy-handed regulatory programs that President Obama and the Democrat-led Congress are enacting and/or considering, and are holding off hiring because of that.

“Its natural that employers are afraid to hire since their taxes will go up on January 1, 2011; their energy bills will rise if Congress passes President Obama’s requested cap-and-trade legislation; their ability to borrow will decline if the financial regulation bill is signed into law; and, if they have a work force of more than 50, they will face a $2,000 penalty per worker if they don’t provide the right kind of health insurance,” said Diana Furchtgott-Roth, senior fellow at the Hudson Institute and former chief economist at the U.S. Labor Department.

She said Congress should consider “lower taxes, lower spending, and less regulatory red tape” to stimulate the economy.

Quoting Republican economists reads like an Onion satire of Republican economists. And their analysis of the problem?  . . .

“Prior efforts to stimulate with deficit spending, absurdly low interest rates, and a series of government programs designed to support the housing and automobile markets have failed to create any meaningful forward momentum,” said Peter Schiff, president of Euro Pacific Capital and a former Republican legislative candidate.

If Congress takes the current economic weakness as a cue to simply spend more, it could lose the confidence of investors in U.S. debt, he said. The economy’s problems grew out of too much spending and debt in the first place, he said.

“Could” lose the confidence? They are so confident that they are buying Treasury debt at the lowest interest rates ever, but they “could” lose confidence? Stimulus didn’t “create forward momentum? The right side of the following chart reflects the effect of the stimulus.


If anything the stimulus just was not large enough — which most economists said at the time — and has run out too soon. But it was weakened by failed bipartisan outreach and anti-government conservative ideology. It included tax cuts, which leave nothing behind, and was cut back by calls to “spend less,” which goes against the point of a stimulus.

As for the claim that the economy’s problems were caused by “too much spending,” the collapse occurred before Bush’s last budget year, with its huge $1.4 trillion deficit, and was the direct result of conservative anti-government, deregulation ideology. (The results from President Obama’s first budget year will be reported after the of September.) For Republicans to claim that the financial collapse is the result of their own spending while criticizing President Obama is an odd way to criticize.

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Dave Johnson

Dave Johnson

Principal author at Seeing the Forest.