Fiscal Policy

Cutting Spending is Not the Right Thing Now

The Republicans in both the House and Senate are advocating an economic policy that is seriously incorrect for our economy at this time. The din of constant moral posturing and fear-mongering by the Republicans and some Democrats is influencing the public and, like a bandwagon, many jump on because it seems right. It is right, we can and should balance our budget and carefully plan our economic future. However, now is not the time.

Economic theory tells us that people’s expectations are a factor; disruptive changes upset people; their expectations change. In my business, when I am trying to build momentum, I postpone all major negative change and focus on getting the team working effectively. I liken my business and the economy to a big Jumbo jet. When times are tough the jet is just rumbling down the runway trying to take off. There may be enough power to lift off but the team doesn’t have the plane trimmed right. It sits back down and rumbles along and may eventually run out of runway (bankruptcy in this analogy). When my business is floundering, stability is extremely important. Firing half the staff or cutting their pay is counterproductive. Cutting Social Security is counterproductive. Cutting Medicare is counterproductive.

When under the stress of a poor economy or a failing business, employees and citizenry tend to stop focusing on the job at hand, i.e. making the business or economy successful, and begin focusing on how the changes will affect their lives. In short, they worry and the plane rumbles along on the ground. We should not make any adverse changes in our level of spending now. In fact, we should increase it.

No cuts in spending now period, military or otherwise. We should not be concerned about balancing the budget now. Let’s get people to work. Let’s spend money on long-term assets; repairing and maintaining infrastructure and enjoying the multiplier effect.

If political pressure requires a balanced budget now, we might raise taxes on the arbitrage sectors (Wall Street) and some corporate activity while bringing back an effective Investment Tax Credit and/or Jobs Tax Credit.

It is economic malpractice to suggest that borrowing to undertake an expansionary fiscal policy is a danger to our economy. It is also economic malpractice to suggest that fiscal policy does not work. It does and it has been proven. It is, in fact, one of the few weapons we have in our arsenal.