Tag: fiscal policy

English Riots, Faux Austerity, and Krugman’s Fairy Tale

London was just hit by heavy riots as part of a protest against the “deep” and “savage” budget cuts of the Cameron government. This is not the first time the UK has endured riots. The welfare lobby, bureaucrats, and other recipients of taxpayer largesse are becoming increasingly agitated that their gravy train may be derailed.

The vast majority of protesters have been peaceful, but some hooligans took the opportunity to wreak havoc. These nihilists apparently call themselves anarchists, but are too ignorant to understand the giant disconnect of adopting that title while at the same time rioting for bigger government and more redistribution. My anarcho-capitalist friends must be embarrassed by the potential linkage with these hooligans.

Speaking of rage, Paul Krugman is equally dismayed with Prime Minister David Cameron’s ostensibly penny-pinching budget. Summoning the ghost of John Maynard Keynes, Krugman asserts that such frugality is misguided when an economy is still weak and people are unemployed. Indeed, Krugman argues that the UK economy is weak today precisely because of Cameron’s supposed austerity.

Not surprisingly, the purpose of his argument is to discourage similar policies from being adopted in the United States.

Here’s part of what Krugman wrote as part of his column on “The Austerity Delusion.”

Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong. …Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right. But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.

At first I wondered if Krugman was playing an April Fool’s joke, but this is consistent with his long-held views about the magical impact of government spending. Besides, his piece is dated March 25, so I think we can safely assume he actually believes that Cameron’s supposed budget cutting is crippling the UK’s recovery.

There are two problems with Krugman’s column. The obvious problem is his unwavering support for Keynesian economics. I’ve addressed that issue here, here, here, here, and here, so I don’t feel any great need to rehash all those arguments. I’ll just ask why the policy still has adherents when it failed for Hoover and Roosevelt in the 1930s, failed for Japan in the 1990s, failed for Bush in 2008, and failed for Obama in 2009.

But the really amazing thing is that both Krugman and the rioters are wrong, not just in their opinions and ideology, but also about basic facts. Government spending has skyrocketed in the United Kingdom in recent years. Spending is even increasing at about double the rate of inflation in the current fiscal year. But don’t believe me. Look on page 102 of the UK’s latest budget.

Maybe that’s austerity to the looters and other protestors who think they have an unlimited claim on the production and income of other people, but it’s hard to see how a 4 percent increase in spending can be characterized as “brutal” and “vicious” spending cuts.

Moreover, Cameron has been a disappointment on the tax issue. He left in place Gordon Brown’s election-year, 10-percentage point increase in the top income tax rate. But then he imposed an increase in the VAT rate and implemented a higher capital gains tax.

To be sure, Cameron’s budget promises a bit of fiscal restraint in upcoming years, with spending supposedly growing at about 1 percent annually over the next three years. That would actually be somewhat impressive, roughly akin to what Canada and Slovakia achieved in recent decades. But promises of future spending restraint (which may never materialize) surely are not the same as present-day austerity.

One final comment: While I obviously disagree with much of what Krugman wrote, he does make some sound points. Many Republicans and Democrats claim that changes in deficits and debt have a big impact on interest, for instance, but Krugman correctly notes that there is no evidence for this assertion. Nations such as Portugal and Greece may face high interest rates, but that’s because investors don’t trust those governments to pay their debts, not because those states’ borrowing is having an impact on credit markets.

Budget Battle Update: It’s About Preparing for the Inevitable Fight, not Forcing a Shutdown

According to news reports, Democrats and Republicans are unlikely to reach any sort of budget agreement before April 8, when a short-term spending bill for the current fiscal year expires.

Barring some new development, this could mean a shutdown of the non-essential parts of the government.

This makes both sides very nervous. Democrats don’t want the spending spigot turned off and are worried that voters might conclude that there’s no reason to ever re-open departments such as Housing and Urban Development. Republicans, meanwhile, mostly worry that they might look unreasonable and get blamed if certain parts of the government are mothballed and voters can’t get passports or visit national parks.

Given this state of play, what’s the best strategy for fiscal conservatives, libertarians, and other advocates of smaller government?

Fred Barnes of the Weekly Standard thinks Republicans should continue with short-term spending bills.

…the incremental strategy is working. Republicans have passed two short-term measures to keep the government in operation since early March while slashing $10 billion in spending. At this rate, they would achieve the target of GOP congressional leaders of lopping off $61 billion from President Obama’s proposed budget in the final seven months of the 2011 fiscal year. There’s every reason to believe the incremental strategy would continue to succeed.

He’s worried that a more confrontational approach, where the GOP passes a take-it-or-leave-it spending bill, might backfire - even though any shutdown would exist solely because Senator Reid and/or President Obama refused to act.

Would a shutdown give Republicans more muscle in negotiating for cuts? …Maybe it would. But it might not. …So long as they control the Senate and White House, Democrats will reject massive cuts. Republicans also want to bar spending for Planned Parenthood, the Corporation for Public Broadcasting, and Mr. Obama’s health-care program. Attach any of these prohibitions to a spending measure and Democratic opposition is certain. Should Republicans insist, we’ll get a government shutdown. This is a big gamble. …Indeed it might discredit Republicans and boost Mr. Obama in the same way the shutdown in 1995 hurt Republicans and lifted President Bill Clinton out of the doldrums. It could alienate independent voters so critical to the Republican triumph in 2010. True enough, the political atmosphere is more favorable to serious spending reductions than it was 16 years ago. …But why take a chance?

I think Barnes is a bit off in his portrayal of what happened in 1995, as I’ve previously explained, but these are all fair points. A “shutdown” fight could be considered uncharted territory.

Keith Hennessey, a former Hill staffer and Bush Administration official, also is skeptical of a confrontational approach. Instead, he suggests that the GOP increase the pressure on Democrats by slowly increasing the amount of weekly spending cuts.

While negotiating with the President’s team and Senate Democrats, in this variant House Republicans continue to pass short-term Continuing Resolutions as long as there is not an acceptable full-year deal. In these repeated future CRs, they ratchet up the spending cuts by the paltry figure of only $100 million each week. …Under this new variant, as April 8th approaches House Republicans would pass another three week CR, one which cuts $2.1 B in its first week, $2.2 B in its second week, and $2.3 B in its third week. …Such a tiny weekly increment would be nearly impossible for Democrats to reject. And yet if continued through the end of this fiscal year, $4.5 B of discretionary spending would be cut in the final week, that of September 23rd. This strategy…poses zero additional risk for Congressional Republicans. They would maintain the high ground on spending cuts and remain on the offensive for the next six months.

There’s a lot to like about Keith’s approach. If successful, he explains, GOPers could wind up with $82 billion of cuts rather than just $61 billion.

But here’s my concern about an incremental strategy. What makes anyone think that the left will go along with short-term spending bills, regardless of whether they cut $2 billion per week, or even more?

Democrats already have agreed to $10 billion of cuts, and even though that’s very trivial when compared to total spending (akin to a couple of french fries out of a Big Mac meal), the pro-spending lobbies and their allies on Capitol Hill are balking at the thought of additional cuts. So while it might be possible to push through a couple of additional short-term spending bills, there will come a point when Democrats refuse to play ball. And when that happens, we’re back to a partial shutdown.

Here’s how constitutional lawyer James Bopp, Jr., explained the issue in a piece for the Washington Times.

A government shutdown is inevitable because President Obama will insist on it. Nothing the Republicans do, short of total capitulation, will prevent this from happening. …With a three-week extension of government funding (which included $6 billion in cuts) expiring April 8, now is the time to escalate one’s bid. Demand $12 billion in cuts the next time. And when the shutdown occurs because of an Obama veto or a vote in the Democrat-controlled Senate, the House should keep passing bills to reopen the government, coupling it with more spending cuts. …There is a fundamental contradiction in the Democrats’ shutting down the government. The Democrats are the party of government. It is like a bank robber, caught in the act, who threatens to pull the trigger on himself if arrested; what would the cop say but, “Go ahead”? The government shutdown threat defeats the Democrats own objective and is thus ultimately self-defeating, while the Republicans protect the bank depositors - the taxpayers - from the bank robber.

I think this is largely correct, particularly in that there almost certainly will be a shutdown fight. The only question is when it will happen. And if a shutdown battle is inevitable, advocates of smaller government should decide whether it’s better to have that fight sooner rather than later.

My instinct is that it would be better to fight now. GOP resolve presumably will decrease over time, particularly since the “easy” spending cuts get used up first. Moreover, it is quite likely that a strategy of short-term spending bills will complicate GOP efforts to get budget process reform in a couple of months in exchange for an increase in the debt limit.

Democrats surely don’t want the GOP to have another opportunity to restrain the size of government, so they would insist on an increase in the federal government’s borrowing authority as the price for approving whatever short-term spending bill is being considered around that time. Republicans presumably will balk at that demand. But that brings us back, once again, to a shutdown fight. Only this time, it will be complicated by demagogic assertions of a default.

So long as the final result is a smaller burden of government, there is no right or wrong answer about the process. It’s simply a question of which approach is more likely to achieve the desired outcome. I think fighting now is better than fighting later, but if the GOP chooses a strategy of short-term spending bills, I hope I’m wrong.

What Are Republicans Thinking?!?

I posted recently at International Liberty about the stunning political incompetence of Republican Senators, who reportedly are willing to give Obama an increase in the debt limit in exchange for a vote (yes, just a vote) on a balanced budget amendment.

As I explained, there is no way they can get the necessary two-thirds support to approve an amendment, so why trade a meaningless and symbolic vote on a BBA for meaningful and real approval of more borrowing authority for Obama? My analogy yesterday was that this was like trading an all-star baseball player for a utility infielder in the minor leagues.

I did acknowledge that forcing a vote on a BBA was a worthwhile endeavor, but said that the GOP has that power anyhow, so why trade away something valuable to get something you already can get for free?

Little did I realize that Republicans already did force a vote on the balanced budget amendment. Less than one month ago, on March 2, Senator Lee of Utah got a vote on a “Sense of the Senate” resolution in favor of a balanced budget amendment. Senator Lee’s resolution received 58 votes, which is nice, but an actual amendment would need a two-thirds supermajority, so this test vote demonstrated that there is no way to approve an amendment this year.

I’m glad Senator Lee proposed his resolution. I’m glad Senators were forced to go on the record.

But I’m mystified, flabbergasted, and stunned that Republicans apparently are willing to give Obama a bigger debt limit in exchange for something they already got.

Returning to our baseball analogy, this would be like the Yankees giving Derek Jeter to the Red Sox in exchange for a player they already have, such as Alex Rodriguez. I imagine New York sportswriters would be dumbfounded by such stupidity and would rip the team’s management to shreds. So that gives you an idea of how I feel about what’s happening in Washington.

As I noted in my earlier post, I’ll soon write about the fiscal reforms fiscal conservatives should demand in exchange for a higher debt limit.

Are Republicans Winning the Budget Battle but Losing the Budget War?

Among advocates of limited government, there is growing unease about the fiscal fight in Washington.

This is not because anything bad has happened. Indeed, Democrats thus far have been acquiescing – at least on a temporary basis – to conservative demands for $61 billion of spending cuts over the rest of the current fiscal year. This is remarkable after 10 years of endlessly expanding government.

Here’s what Jennifer Rubin wrote at her Right Turn blog.

A senior Senate adviser wisecracked, “A month ago, they said they couldn’t possibly cut a dime. Then they said the $4 billion [in] cuts in the first CR were a non-starter. Now they’re bragging about cutting spending?” It is a remarkable turn of events and another sign that Reid was bested in this round of budget battling. Twice now he capitulated to House Republicans.

This analysis is right, and it is very similar to what I wrote back on March 2 regarding the first short-term agreement.

So why, then, am I worried?

I’m nervous because the fiscal fight is evolving in a bad direction. In that March 2 post, I warned that “Republicans should be very careful about having their energy dissipated by a series of diversionary battles over short-run spending bills.”

That prediction, unfortunately, seems to have been rather accurate. Democrats have reluctantly agreed to some spending cuts, but their decisions perhaps could be characterized as a rope-a-dope strategy - tactical retreats designed to regain control over the field of battle and win the ultimate fiscal war.

The elephant in the living room, of course, is the threat of a government shutdown. Republicans seem terrified that they will get blamed if there is a stalemate and this leads to a shutdown of the non-essential parts of the government. And they are terrified of this outcome even if they have approved a budget and the stalemate exists solely because Harry Reid has blocked their budget in the Senate and/or Barack Obama has vetoed their budget.

I’ve already explained, in an article for National Review Online, why GOPers should not allow themselves to be blackmailed on this basis. The 1995 shutdown was a big policy success. Republicans did not get everything they wanted, to be sure, but the final result was real fiscal restraint - a four-year period where government spending grew by an average of less than 3 percent.

Moreover, the shutdown was hardly a political setback. Democrats on Capitol Hill were defecting to the GOP side during the fight, and the political people in the Clinton Administration were genuinely concerned that they might not be able to sustain the President’s veto. Some GOP political operatives thought, after the fight was over, that they lost because Clinton polled better than Gingrich, but this certainly didn’t keep Republicans from comfortably holding the House in 1996 and actually picking up seats in the Senate.

So what happens now? Republicans basically have two choices of how to proceed. Both options have some risk, but one approach almost surely leads to failure.

  1. Draw a line in the sand and pass a strong budget with cuts and meaningful reforms, even if it means the Democrats block the spending bill and cause a shutdown.
  2. Upsides - This approach is more likely to lead to an outcome that reduces the burden of government spending. Moreover, it surely would trigger more activism from libertarians, conservatives, and other supporters of limited government. A victory based on this approach (or even a draw) creates momentum for both the FY2012 budget resolution battle and the debt limit fight.

    Downsides - The left, including the establishment press, will portray the GOP negatively. More specifically, they will claim Republicans are “shutting down the government” because of supposedly extraneous issues like abortion (i.e., the funding controversy over Planned Parenthood), the environment (the debate over the “rider” provision to curtail the EPA’s power grab), or healthcare (defunding Obamacare).

  3. Do everything possible to avoid a shutdown, even if it means higher spending and no reform.
  4. Upsides - There is no risk of being blamed for a shutdown.

    Downsides - This French-army approach basically means that Republicans give up on fiscal policy for the next 21 months. Surrendering to avoid a shutdown means the burden of spending is higher. It means no program reforms or eliminations. Because of this precedent, it is highly unlikely that the GOP could attach meaningful fiscal conditions to the debt limit. Similarly, the loss of momentum would carry over to the budget resolution, undermining chances for fiscal reform in the 2012 fiscal year budget. Last but not least, the “base” would be very disappointed as activists from the Tea Party and elsewhere begin to conclude that fighting against big government is a fool’s errand.

Even in the most ideal scenario, using the line-in-the-sand strategy, fiscal conservatives in the House will not get everything they want. The real issue is which side has the upper hand in the negotiations.

The fight-rather-than-surrender approach gives the GOP leverage. They almost surely won’t get $61 billion of cuts, but they’ll be much closer to that number than with the French-army approach. They won’t succeed with all the “riders,” but they’ll make progress - perhaps temporarily setting aside the Obamacare issue in exchange for clipping the EPA’s wings, or gutting Planned Parenthood but letting NPR off the hook.

Politicians inevitably are worried about the political consequences of any strategy. That’s harder to judge, but they can protect themselves by not making it seem as if they welcome a partial shutdown. I explained in the National Review article that there are several lesson that fiscal conservatives can learn from 1995 that can help them prevail in 2011.

First and foremost, Republicans should keep passing bills to reopen the entire government. They should stress that they want the government open and explain that it is only closed because of Harry Reid’s obstinate support for big government and/or Barack Obama’s use of his veto pen on behalf of special interests. …Keep passing bills to reopen the parts of the government that voters actually care about, such as VA hospitals, the Social Security Administration, and national parks. …Remember that a government shutdown generally puts more financial pressure on the Left. If there is a lengthy showdown, Democratic constituencies begin to squeal. …In 1995, Republicans had to deal with a very hostile press corps. There was no Fox News, no Internet as we know it today, and no cadre of talk-radio hosts to augment Rush Limbaugh. So while it is true that CBS, NBC, ABC, CNN, the New York Times, and the Washington Post will regurgitate Democratic talking points, many voters will have access to conservative news sources, something that was not the case in 1995.

Bush Was Not a Conservative

There’s an interesting debate in the blogosphere about whether President George W. Bush was a conservative. Here’s a good summary of the discussion, along with lots of links. (I especially like this analysis since it cites my work.)

I’ve already explained that Bush was a statist rather than a conservative, and you can find additional commentary from me here, here, here, and here.

Simply stated, any president who doubles the burden of federal spending in just eight years is disqualified from being a conservative — unless the term is stripped of any meaning and conservatives no longer care about limited government and constitutional constraints on Washington.

But if you don’t want to read the blog posts I linked above, this chart should make clear that Bush was a big spender, not only when compared to Reagan, but also compared to Clinton. Moreover, we’re only looking at overall domestic spending, so this doesn’t include Iraq, Afghanistan, and other defense expenditures. And these are inflation-adjusted dollars, so we’re comparing apples to apples.

Let’s also examine the burden of domestic spending as a share of GDP. As you can see, there actually was progress during the Clinton years, and significant progress during the Reagan years. But all that was completely wiped out during the Bush presidency.

These numbers should not be a surprise. During Bush’s tenure, we got the no-bureaucrat-left-behind education bill, two corrupt farm bills, a new prescription drug entitlement, two pork-filled transportation bills, an auto company bailout, and a TARP bailout for banks.

This was a time of feasting for special interest groups and lobbyists, to put it mildly.

If that’s conservative, then Ronald Reagan was a liberal.

Norquist Is Right, Coburn Is Wrong: Tax Increases Undermine Good Fiscal Policy

There’s a significant debate now taking place in Washington — largely behind closed doors, but sometimes covered by the media — on whether fiscal conservatives should maintain a rigid no-tax-increase position. One side of the debate features Grover Norquist of Americans for Tax Reform, which is the organization that maintains the no-tax-increase pledge. The other side features Sen. Tom Coburn of Oklahoma, who is part of a small group of GOP senators who might be willing to increase the tax burden as part of a deal that supposedly reduces deficits.

I’m a huge fan of Senator Coburn, who was in favor of cutting wasteful spending before it became fashionable. His office, for instance, releases a “Pork Report” every couple of days. You shouldn’t read it if you have high blood pressure, because it will confirm (and reconfirm, and reconfirm, ad nauseum) your worst fears about tax dollars getting wasted.

Nonetheless, I’m on Grover’s side on this tax debate, for two reasons.

First, we have a spending problem, not a revenue problem or a deficit/debt problem. Red ink is undesirable, to be sure, but it is a symptom of the underlying problem of a government that is too big and spending too much.

But don’t believe me. Here is a chart from the House Budget Committee showing long-run projections for spending and revenues over the next 70 years. As you can see, the long-run fiscal shortfall is completely caused by higher spending. In other words, 100 percent of red ink is due to government spending. So why put taxes on the table?

But this chart actually understates the case against tax increases. It uses revenue numbers from the Congressional Budget Office’s “alternative” forecast, which shows taxes steady at 19.3 percent of GDP. That’s more than the historical average of about 18 percent of GDP, which surely indicates that revenues are not the problem.

However, that 19.3 percent estimate is completely artificial. As CBO states in its long-run forecast, “the alternative fiscal scenario also incorporates unspecified changes in tax law that would keep revenues constant as a share of GDP after 2020.”

I’ll actually be delighted if we can permanently keep federal revenues below 20 percent of GDP, but I’m not overly optimistic about that because the tax burden is projected to automatically increase over time. And I’m not talking about the expiration of the Bush tax cuts or the broadening of the alternative minimum tax. Yes, those factors would push up tax revenues (at least based on static revenue estimates), but the tax burden also is expected to climb because even modest economic growth slowly but surely pushes more and more people into higher tax brackets.

This second chart shows CBO’s estimate of personal income tax revenue based on current policy (as opposed to estimates based on current law, which includes already-legislated tax hikes). To be more specific, it shows how much revenue the government will collect from the individual income tax even if the 2001 and 2003 tax cuts are made permanent and the AMT is indexed.

As you can see, the aggregate individual income tax burden will increase by roughly 5 percentage points of GDP when compared to the long-run average of about 8 percent of GDP (the CBO estimate only goes to 2035, so I extrapolated to show the same time period as the first chart). And remember, this is the forecast of what will happen to income tax revenues even if politicians don’t impose any new laws to coercively extract more revenue.

This might not be too bad if other taxes were falling, but that’s not what CBO is projecting. As such, this big increase in revenue from the individual income tax means that the overall tax burden will climb by approximately the same amount.

In other words, revenue likely will rise close to 25 percent of GDP as we approach the next century. So if we use this more realistic baseline, we can say that more than 100 percent of the long-run deficit problem is because spending is out of control.

The second reason for a firm no-tax-increase position is that higher taxes are a very ineffective way of reducing budget deficits. Indeed, tax increases generally backfire and lead to more red ink. To understand why, it’s important to put away the calculator and instead consider the real world of politics and public policy. For instance:

  • Tax increases rarely raise as much revenue as predicted by government forecasters. This is because of “Laffer Curve” effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, people respond to incentives, and this means taxable income falls as tax rates increase.
  • Tax increases erode pressure to control spending. Why would politicians want to make tough decisions and upset special interest groups, after all, when there is going to be more revenue (or at least the expectation of more revenue)? Using more colloquial language, trying to control spending with higher taxes is like trying to cure alcoholics by giving them keys to a liquor store.
  • Milton Friedman was right when he said that “in the long run, government will spend whatever the tax system will raise, plus as much more as it can get away with.” In other words, if politicians think they can get away with deficits averaging, say, 5 percent of GDP in the long run, then the only impact of higher taxes is an equal amount of additional spending — while still retaining deficits of 5 percent of GDP.

The real-world evidence certainly points in this direction. We’ve seen “bipartisan budget summits” several times in Washington, and the result is more spending rather than lower deficits. Americans for Tax Reform has a good analysis of what happened after the two big budget summits in 1982 and 1990, but I think the problem is best captured by my adaptation of a famous Peanuts cartoon strip.

Every year, if my aging memory is correct, Lucy would ask Charlie Brown if he wanted to kick the football. At first, Charlie was skeptical. But Lucy always managed to trick him into giving it a try. And the inevitable result was Charlie Brown lying on his back wondering why he had been so foolish.

In the Washington version of this cartoon, Democrats hypnotize gullible Republicans with ostensibly sincere promises of future spending restraint. Republicans eventually acquiesce, naively assuming that Democrats will be their new BFFs in the fight against big government.

Needless to say, that’s not the way the story ends.

Ronald Reagan is reported to have said that the 1982 tax increase was the “biggest mistake” of his presidency. And since Congress never followed through on commitments to reduce spending by $3 for every $1 of higher taxes, he wryly remarked that “I’m still waiting on those three dollars of spending cuts I was promised from Congress.”

Like Reagan, Coburn wants to do the right thing. But good intentions are not the same as good policy. America’s fiscal challenge is too much spending. Government is too big and it is wasting too much money. Taking more money from the American people is not the way to solve that problem.

Bernanke’s Soft-Core Keynesianism Is Even Worse than the Nonsensical Analysis of Hard-Core Keynesians

Earlier this week, the Washington Post predictably gave some publicity to the Keynesian analysis of Mark Zandi, even though his track record is worse than a sports analyst who every year predicts a Super Bowl for the Detroit Lions. The story also cited similar predictions by the politically connected folks at Goldman Sachs.

Zandi, an architect of the 2009 stimulus package who has advised both political parties, predicts that the GOP package would reduce economic growth by 0.5 percentage points this year, and by 0.2 percentage points in 2012, resulting in 700,000 fewer jobs by the end of next year. His report comes on the heels of a similar analysis last week by the investment bank Goldman Sachs, which predicted that the Republican spending cuts would cause even greater damage to the economy, slowing growth by as much as 2 percentage points in the second and third quarters of this year.

Republicans understandably wanted to discredit this analysis. But rather than expose Zandi’s laughably inaccurate track record, they asked the Chairman of the Federal Reserve, Ben Bernanke, for his assessment. But this is like asking Alex Rodriguez to comment on Derek Jeter’s prediction that the Yankees will win the World Series.

Not surprisingly, as reported by McClatchy, Bernanke endorsed the notion that spending cuts (actually, just tiny reductions in planned increases) would be “contractionary.”

Bernanke was asked repeatedly about GOP proposals to trim anywhere from $60 billion to $100 billion in government spending during the current fiscal year, which ends Sept. 30. These cuts would do little to bring down long-term budget deficits but would slow the economic recovery, he cautioned. “That would be ‘contractionary’ to some extent,” Bernanke said, projecting that “several tenths” of a percentage point would be shaved off of growth, and it would mean fewer jobs. …While Democrats got what they wanted out of Bernanke with that answer, he frowned on some of their projections that the spending cuts that are being debated could reduce growth by a full 2 percentage points.

Since he is not a fool, Bernanke was careful not to embrace the absurd predictions made by Zandi and Goldman Sachs. But that’s merely a difference of degree. Bernanke’s embrace of Keynesian economics is disgraceful because he should know better. And his endorsement of deficit reduction (at least in the long run) is stained by crocodile tears since Bernanke supported bailouts and endorsed Obama’s failed stimulus.

But while Bernanke is not a fool, I can’t say the same thing about Republicans. Bernanke has made clear that he either believes in the perpetual-motion machine of Keynesianism, or he’s willing to endorse Keynesian policies to curry favor with the White House. Republicans should be exposing these flaws, not treating Bernanke likes he’s some sort of Oracle.