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Progressive Economists, Third Way Agree on Dangers of a Spending Cap

Here’s an issue where leading progressive economists and even Third Way agree: spending caps are a miserable policy idea.

With respect to the former, has assembled a list of over 75 economists who have written a letter to Congress detailing why spending caps would be so disastrous. The signatories include such luminaries as Dean Baker, Jamie Galbraith, Larry Mishel, Robert Reich, Brad DeLong and many more.

Such caps would require cutting or eliminating programs that are vital to the middle class like Social Security, Medicare and Medicaid. To put it bluntly, these plans would amount to nothing less than a Medicare kill switch […]

The Congressional Budget Office’s cost projections imply that the House Republican plan to privatize Medicare would increase the cost of providing health care to seniors by $34 trillion over 75 years, and shift the increased costs onto seniors. While the budget plan approved by the House imposes this enormous cost by explicitly privatizing Medicare, the caps imposed by the McCaskill/Corker plan would almost certainly lead to the same outcome.

Basically, the message is that tax cuts, health costs and two wars caused the deficit over the last decade, and to the extent you want to fix that, doing it solely through spending and entitlement cuts borders on insanity. Also, McCaskill/Corker, as well as a Balanced Budget Amendment from Richard Shelby and Mark Udall which they throw in here as well, would make it impossible to use counter-cyclical spending to stop a recession. The federal government would become just as constrained by law as the states, leading to drastically bad consequences.

And incredibly, that’s the message as well from Third Way, the organization which has breathed new life in the wake of the Democratic Leadership Council’s departure from the scene. Third Way believes in deficit reduction and even they have problems with the spending cap approach, relating it to “driving a car with two wheels” (a motorcycle?). They mainly say that more balanced deficit reduction plans are available, and that a spending-only approach (which ignores tax expenditures) would cut off future investments. They can’t help but get a dig in at tariffs, calling a spending cap potentially “the next Smoot-Hawley,” when in actuality the idea that Smoot-Hawley caused the Depression has no actual support in theory or practice. But Third Way puts their horrible analogy to good use here.

So there’s broad agreement from the left to center-right of the political spectrum that spending caps would be a terrible idea. However, deficit caps, a distinction without a huge difference, sit there as a possibility

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David Dayen

David Dayen

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