How the House Budget Would Boost the Economy

Wall Street Journal ^ | 03/19/13

[MissesBush]

This week the House of Representatives will vote on its Budget Committee plan, which would bring federal finances into balance by 2023. The plan would do so by gradually slowing the growth in federal spending without raising taxes.

Still, the plan has been denounced by naysayers who assert that it would harm the economic recovery and that, at the least, any spending reductions should be put off until later. This thinking is just as wrong now as it was in the 1970s.

According to our research, the spending restraint and balanced-budget parts of the House Budget Committee plan would boost the economy immediately. With the Budget Committee's proposed tax reform included, the immediate impact would be even larger. The entire plan would raise gross domestic product by one percentage point in 2014, equivalent to about a $1,500 increase for each U.S. household. Ten years from now, at the end of the official budget horizon, we estimate that the entire plan would raise GDP by three percentage points, or more than $4,000 for each U.S. household.

Our assessment is based on a modern macroeconomic model (developed with Volker Wieland of the University of Frankfurt and Maik Wolters of the University of Kiel) whose features include a recognition that the resources to finance government expenditures aren't free—they withdraw resources from the private economy. The model provides for other essential attributes of the economy—that consumers, businesses and workers respond to incentives, and they are influenced by their expectation of future economic conditions when making decisions today. None of these features is provided for in old-style Keynesian models.

The House budget plan keeps total federal outlays at their current level for two years...By 2023, federal expenditures would decline to 19.1% of GDP in 2023 from 22.2% today.

[MissesBush]

One thing left unmentioned--this plan has zero chance of becoming law with a Senate not interested in governing and a "president" only out to impose an extreme ideological agenda, not actually fix the country's problems or leave the country better than when he found it. All Obama cares about is imposing a radical, unamerican imprint as the legacy for himself when he leaves office, one only about 20% of the nation agrees with and much of the rest doesn't get is his intention.

[econjack]

It simply amazes me how people can conclude that gov’t spending is the solution to economic growth. For some reason, they think that the gov’t can fabricate demand out of thin air. The spending funds have to come from somewhere, which means either higher taxes or increased debt: A true dilemma...two choices, both bad. The idea that the gov’t should take my money and spend it assumes that they know how to spend my money better than I do. Really? Do I really want to give some unproductive leech in Cleveland a free cell phone? How does that foster growth? Smaller gov’t is the answer, not more of it.