Yeah, it’s good to cut federal spending, but…

As I’ve said, with the economy in the dumps, I hate to see us either cutting spending OR raising taxes — even though if we’re going to deal with the deficit, we need to do both.

But I was reminded of the price of it in this piece in The Wall Street Journal today:

Government Spending Holds Key to Growth

As goes government spending, so goes the U.S. economy.

This is the unpleasant reality a weak recovery and already stretched Federal Reserve have bequeathed. Absent a sudden pick-up in private sector activity, economic growth in the months ahead will largely take its cue from Congress and the White House. No wonder markets are jittery.

For one, the hit from spending cuts across all levels of government has already been a major drag on growth. Indeed, these declines shaved 0.7 percentage-points on average from gross domestic product growth in the first two quarters of 2011. Typically, that would be no disaster. Trouble is, this recovery has been unusually weak. So the government cutbacks effectively halved real GDP growth in the first half of 2011, leaving it at just 0.8% annualized.

The pace of underlying growth is expected to pick up a bit in coming months. But so, too, is the pace of government spending cuts. A glimpse of this will come Wednesday with the release of July federal budget figures….

Yeah, I know. Rock and a hard place.

16 thoughts on “Yeah, it’s good to cut federal spending, but…

  1. Kathy

    Perhaps if the giant stimulus had been a well planned bill that created jobs to improve our infrastructure (a la FDR’s programs), it would have resulted in a much bigger economic boost instead of just being another huge addition to our national debt (a political “wish list” for wasting money). It makes me sick to think of all that waste when a targeted bill may have actually done some good. At the very least, FDR put some people to work instead of just paying them to do nothing and built many “structures” that we’re still enjoying today including some of our parks, libraries, and utilities—and included work on the Blue Ridge Parkway.

    Yes, we are definitely between a rock and a hard place. That’s what happens when Republicans and Democrats mindlessly spend, spend, spend borrowed money for decades and never stop to think about the future.

  2. bud

    Kathy, the stimulus did help put teachers and cops back to work and there were some infrastructure projects. But your point is correct in that the stimulus was not well planned. It could have been much better. Now it will be impossible to pass anything else that would actually help the economy.

  3. Lynn T

    It isn’t actually that bad a rock and hard place. Taxes were not especially high under Clinton, and we had adequate funds to run the government and generate a surplus, while the general economy flourished and unemployment was low.

    Because of the Bush tax cuts our government is now funded at an historically low percentage of GDP. It is only the extreme rhetoric on the right that portrays raising taxes as a “job killer.” The “job creating” people and corporations that the Republicans love so much to talk about and revere have had their low taxes for a decades, and the only result is a near-depression while they sit on trillions of dollars. Raising taxes on high incomes and getting rid of corporate loopholes would put at least some part of that money to work. This isn’t “class warfare”, as the right loves to scream, it is simply practical. What we are doing now (historically low taxes on income and many corporate loopholes) isn’t working to sustain a democratic society with a stable government. Too little of the money is making it into the demand side of the economy.

  4. Tim

    This is probably unrelated, but in reflecting on the ‘supercommittee’ selections, I think they should have done it this way: Democrats get to pick the republican members and vice versa. Or at least get 1 or 2 picks. It would have made the impending mexican standoff less likely.

  5. Steven Davis

    When FDR was in office, people wanted to work. The same program today wouldn’t work because people are accustomed to sitting around waiting for the mailman to deliver their entitlement check.

  6. `Kathryn Fenner

    Dude on NPR was saying that the Fed needs to drastically lower the interest rates it pays its members who are squirreling their cash there, or even charge them interest. Banks need to liberate some stimulating funds!

  7. Steven Davis

    That’s the intelligence of NPR… banks are already paying sub-1% interest on savings accounts and CD’s. You might get 2% if you lock in for 2+ years.

    People get chastised for spending money, people get chastised for saving… WTF do these so called “experts” want?

  8. Brad

    Notice how I just ignored Steven’s crack about the “intelligence” of the one news source that probably deals more intelligently with issues than any other news source in this country?

    OK, maybe the WSJ is as good. Maybe the NYT, although I don’t read it much anymore. But no one in THIS country is better.

    On top of that… while commercial news operations are shrinking and getting shallower, NPR is going deeper — as evidence by their hiring of John O’Connor to cover state issues in-depth in Florida. NOBODY else is doing that. Amazing.

  9. Doug Ross


    What do they want? They want SOMEONE ELSE to do something. As usual. And if they don’t like what other people are doing, they think it is perfectly fine to use the government as the tool to make it happen. Forget about letting people or businesses make decisions on their own.

  10. Steven Davis

    Nope, didn’t miss it, commented on it and you posted the comment.

    You know what I’d do if I got charged for hoarding cash? Cash one large check and say I’d like one extra-large safe deposit box please. Being charged $20/month would probably be cheaper than what the bank would be charging for their new “storage fee”.

    I guess NPR is more intelligent, if you’re a Democrat and/or impressed with John O’Connor.

  11. Steven Davis

    “Notice how I just ignored Steven’s crack about the “intelligence””

    If you’re ignoring it, why are you commenting on it? That’s breaking Rule #1 on Ignoring.

  12. Brad

    Kathryn and Steven, maybe y’all missed this, which I’ve mentioned and linked to a couple of times in the last few days. Maybe I should have done a separate post on it, because it IS significant. It was on the front page of The Wall Street Journal Friday:

    Bank to Charge New Fee to Hold Cash

    Bank of New York Mellon Corp. on Thursday took the extraordinary step of telling large clients it will charge them to hold cash.

    The unusual move means some U.S. depositors will have to pay to keep big chunks of money in a bank, marking a stark new phase of the long-running global financial crisis.

    The shift is also emblematic of the strains plaguing the U.S. economy. Fearful corporations and investors have been socking away cash in their bank accounts rather than put it into even the safest investments.

    The giant bank, which specializes in handling funds for financial institutions and corporations, will begin assessing a fee next week on customers that have been flooding the bank with dollars, Bank of New York told clients in a note reviewed by The Wall Street Journal.

    The decision won’t affect individual savers, who already are stuck with near zero interest rates as the Federal Reserve keeps rates low to support a soft economy. But it is a glaring sign that corporate executives, bank leaders and money-market fund managers are fleeing from risk and hoarding cash as the recovery threatens to peter out….

    As you can see, steps are being taken against the hoarders of cash. And it’s the private sector taking the steps.

  13. bud

    Why not just get some cash money and sock it away in a mattress. That would save the fee.

    As usual there is a major point that needs making if only the media had the courage or just tiny bit of intelligence to see it. The GOP is pushing hard for lower taxes on corporations so they will invest more in the economy and thus hire more workers. How much more can that nonsense be discredited? They aren’t investing because there just isn’t a market for anything that can be made or sold. That’s because there are too few workers to buy stuff and those that do work are hoarding money in case of a rainy day. All this uncertainty is because governments at all levels are cutting back, waaaay back. It’s a vicious cycle that could be broken if the GOP would just get out of the way.

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