Former Alaska Sen. Ted Stevens was the object of considerable ridicule for his support of the infamous $400 million “Bridge to Nowhere.” This played a big role in his defeat in the last election.
It is appropriate that members of Congress pay a price for their support of wasteful projects that serve narrow constituencies, but this is not a major source of harm to the country. The total amount of earmarked spending, like the Bridge to Nowhere,” is less than 1 percent of the federal budget; and not all of this spending is wasteful.
By contrast, many members of Congress are doing far more damage to the country with their mindless pursuit of deficit reduction in the middle of the worst downturn in 70 years. This push for deficit reduction could do more damage to the economy and cost more jobs than 1,000 Bridges to Nowhere.
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The basic story is straightforward and should be well known to anyone in a policy position. The collapse of the housing bubble reduced annual demand from the private sector by almost $1 trillion. Huge overbuilding of both residential and nonresidential real estate led to a falloff in annual construction spending of close to $500 billion. The loss of more than $6 trillion of housing bubble wealth has forced consumers to cut back their annual consumption spending by close to $500 billion.
The only force that can replace this $1 trillion shortfall in demand is the federal government. The government can spend based on the confidence of the public in the long-term strength of the US economy. This means that it can run large deficits with little fear of either the sort of investor panic that has recently afflicted the Greek economy or inflation.
With the unemployment rate near 10 percent and the vast amounts of idle capacity almost everywhere, we have more to fear from deflation than inflation. All measures show that inflation is very low and falling, as would be expected in an economy with so much slack.
In spite of a situation that demands more government stimulus to boost the economy, deficit hawks in Congress are now demanding cuts in spending to reduce the size of the deficit. This effort will slow growth and throw people out of work. Therefore, these deficit hawks deserve serious ridicule for doing so much harm to workers and their families.
Today’s object of special ridicule is Pennsylvania Congressman Jason Altmire. Altmire insisted on paring back a package of unemployment benefits and aid to deficit strapped state governments. Altmire told The Washington Post, “We’ve hit the wall. We’ve come to the tipping point where we’re not going to do anymore … I think the case can be made that there are still more people who need jobs than there are jobs available…. But what’s the limit?”
That’s pretty good. The unemployment rate is at 9.9 percent. Prior to the recession, unemployment had not been this high in 27 years, and Altmire thinks, “the case can be made that there are still more people who need jobs than there are jobs available.”
This is not a marginal call. It’s kind of like saying that AIG may have become somewhat overextended. Unfortunately, Altmire has apparently left planet Earth and decided that his top priority is reducing the size of a supplemental appropriations bill.
Altmire and his collaborators managed to squeeze $30 billion out of the bill. If we follow the methodology used in a paper written by Obama administration economists Christine Romer and Jared Bernstein, Altmire’s cuts will reduce growth by roughly $50 billion. This will throw more than 300,000 people out of work.
That’s a great thing for members of Congress to do – throw people out of work. It really helps their children, also. Altmire can explain to the kids whose parents are forced to give up their homes that they will have a lower interest burden on the debt (which is not even true). The kids will no doubt thank Altmire for his consideration.
In fairness, Representative Altmire probably doesn’t know squat about the economy. He probably just takes his cue from wealthy friends who enjoy muttering about “fiscal responsibility” when the issue is items like unemployment benefits and aid to state and local governments.
But, ignorance is not much of an excuse when you are crafting economic policy. Because of Altmire’s blind pursuit of deficit reduction, hundreds of thousands of people will suffer needlessly and the nation as a whole will see growth curtailed. If ridicule were proportional to the damage done by their policies, given the treatment of Senator Stevens, we would have to start a new television network dedicated to this purpose to ensure that Representative Altmire received the proper level of ridicule.