Does the chart show that spending reduced unemployment (the lines seem to be correlated) or does it show that spending underperformed? What makes this determination so hard is the difficulty showing causation and not merely correlation. There are too many variables to know one single factor works. (Here is a link to a paper that tries to isolate variables at the state level.) Economic research supports that spending has causal effects on temporary job growth. Once again, there is a difference between soundbites and reality.
Let’s get back to Gov. Kasich’s story and follow the Post as they set the stage.
The Post starts by asking Gov. Kasich why he does not have a detailed tax plan. His stock response to these question is that tax plans don’t matter and he sticks to the script. He says that the key to growth is a balanced budget and then moves to his talking points. He wants lower regulations on business, lower taxes (sorry Donald) and spending cuts.
The Post rightfully follows-up by stating Gov. Kasich seems to be balancing the budget through cuts. This seemingly makes sense. If you lower taxes, revenues go down. To balance the budget, you need expenses to go down also.
But Gov. Kasich pivots. He says, no, he will balance the budget by increasing economic growth (I’m guessing through his first factor). By increasing the total revenues, according to Gov. Kasich cuts won’t matter because we will have a greater pie.
That would be true if you could show that by cutting spending, cutting back regulations and lowering taxes increase growth. Gov. Kasich points to Ohio as an example of this plan working.
Unfortunately, his position is problematic for two reasons. One, Ohio is not doing as well as he claims. Two, this same toxic combination lead to the last recession and stagnate job growth. A retrenchment by the government in spending may sound great, but, in our tenuous job environment, a pullback could give back all the job growth over the last two plus years.
As Justin Wolfers stated, “[a]t a time of mass unemployment, it’s clear, the economics textbooks tell us, that this is not the right time for fiscal retrenchment.” Economists don’t agree on much, but, they do on this point. Although, this plan may sound like it makes sense, as part of an economic driver, it is a disaster.
We may have finally have made it past the effects of the sequester. The housing market is recovering and consumption is higher. But If government spending stops, the economy and the private sector will shrink. I am not comfortable that the economy has fully recovered that we can leave the job stabilization to the market. I may be wrong (I often am), but the alternative is a welcome back to 2008!
Posted on April 25, 2016 April 25, 2016 by David HerzigPosted in Governance, Tax in Popular Culture, Tax Policy, Taxes and Politics, UncategorizedTagged economic growth, jobs, Kasich, republican, spending cuts.