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Wednesday, January 30, 2013

Shrink the government immediately or prioritize strengthening immediate economic conditions; we can't do both

Government is hurting the economy by not spending enough

A few economists last year calculated that the jobless rate was at least a full percentage point higher than it otherwise would have been if local and state governments had just maintained their workforces. In previous GDP reports, we saw that cutting government spending at all levels was trimming growth, keeping it below what most of us would continue a healthy pace.

That's the same thing we found this morning, only that a massive deceleration of defense spending combined with unrest over the fiscal cliff, Superstorm Sandy and the volatile business inventory sector put economic growth on "pause," as the Fed deemed it.

If shrinking the government is the most important thing, then we should continue down this path and take the short-term hit for -hopefully - a longer-term fiscal gain.

But if juicing the economy right now to put more people back to work is the priority - which could also lead to a reduced deficit because more people working means more people paying taxes and creating economic activity - then we can not continue done this path.

We have to pick a lane. Seems like we want our cake and eat it, too.

Of course, we also want the national debt to be dealt with - as long as the programs we love go untouched, so what's new?

My preference is that we set in place today tax and entitlement reform that will deal with the long-term fiscal situation while also finding a way to support the current economy, or at least not hurt it further with increased immediate pullbacks in government spending.


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