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Wednesday, September 14, 2011

Politicans Do Not Understand Economics

Politico:
“I think the best jobs bill that can be passed is a comprehensive long-term deficit-reduction plan,” said Sen. Tom Carper (D-Del.), discussing proposals to slash the debt by $4 trillion by overhauling entitlement programs and raising revenue through tax reforms. “That’s better than everything else the president is talking about — combined.”
TPM:
I asked Rep. Heath Shuler (D-NC) whether he agreed with CBO chief Doug Elmendorf — and by extension Obama — that the wisest economic path involves near term stimulus followed by long-run fiscal restraint. “I would definitely be at odds with his comment on that — I mean we’ve got to get our fiscal house in order,” Shuler said...
Rep. John Barrow (D-GA) said Obama’s actual jobs plan is much less important than the fact that he’s talking about the economy.
“The President’s jobs package is about instilling confidence — to be listening to folks out there,” he told reporters. “There’s a mixed media message going to folks back home, they’re not sure, are we paying attention to their plight. End of the day, what’s in, what gets passed at the end of the day in the President’s jobs package isn’t as important as the fact that we’re talking about, and more importantly that Boehner and Cantor are at least on the surface seem to want to do something with the President. That’s the kind of confidence we want to instill in the Super Committee.”
 NYT
“I have been very unequivocal,” said Representative Peter DeFazio, Democrat from Oregon. “No more tax cuts.”....“I have serious questions about the level of spending that President Obama proposed,” said Senator Joe Manchin, Democrat from West Virginia....
 And Republicans don't understand lowering the deficit hurts unemployment either. There are two possible mechanisms how deficit reduction (a reduction in demand) could increase aggregate demand. 
1. reduced government borrowing could reduce interest rates.  But interest rates are usually already very low during a recession and there is no evidence that this has ever worked.
2. The "confidence fairy".  The idea is that citizens are saving excessively much money because they are worried about government deficits and when the government stops borrowing, private citizens will feel more confidence and start borrowing and spending.  But there is no evidence for this either.    

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