Ron Paul's newly-unveiled economic plan --
promising to cut $1 trillion from the federal budget in year one
(presumably that means 2013) -- is only slightly more ambitious than what
we're hearing from other Republican candidates. They're all calling for
major spending cuts starting as soon as possible.
What are they smoking?
Can we just put ideology aside for a moment and be clear about the
facts? Consumer spending (70 percent of the economy) is flat or dropping
because consumers are losing their jobs and wages, and don't have the
dough. And businesses aren't hiring because they don't have enough
The only way out of this vicious cycle is for the government -- the
spender of last resort -- to boost the economy. The regressives are all
calling for the opposite.
But even without these hare-brained Republican plans, we're heading
in their direction anyway. Unless Republicans agree to a budget deal
before the end of the year (don't hold your breath), the temporary
payroll tax cuts and extended unemployment benefits we have now will
The result will be the most stringent fiscal tightening of any large economy in the world.
Together with ongoing cuts at the state and local government level,
the scale of this fiscal contraction would be almost unprecedented.
It will come at a time when 25 million are Americans looking for
full-time work, median incomes are dropping, home foreclosures rising,
and a record 37 percent of American families with young children are in
To call this economic lunacy is to understate the point.
And if you think 2011 is bad, you ain't seen nothin' yet.
Even if you're a deficit hawk this is nuts. Instead of reducing the
ratio of debt to the size of the overall economy, this strategy
increases the ratio because it causes the economy to shrink.
Call it the austerity death trap.
Under these circumstances, the harder a country works to cut its
debt, the worse the ratio becomes -- because the economy shrinks even
Greece is already in the trap. Spain and Italy are perilously close.
Even Britain, France, and Germany are tip-toeing up to it. And now us.
Deficit hawks have to understand: The first step must be to revive
growth and jobs. That way, revenues increase and the debt/GDP ratio
drops. Only then -- when the economy is back on track -- do you start
At the start of the Clinton administration the annual budget deficit
was almost $300 billion. But rather than take a meat-axe to spending, we
pushed for growth, as did the Fed. The expansion of the 1990s made it
easy to get the budget under control. By 2000 we had a $226 billion