Keynesian Budget Office Warns of new Recession

May 23, 2012 11:00 AM ~  
WASHINGTON (AP) — A new government study released Tuesday says that allowing Bush-era tax cuts to expire and a scheduled round of automatic spending cuts to take effect would probably throw the economy into a recession.

The Congressional Budget Office report says that the economy would shrink by 1.3 percent in the first half of next year if the government is allowed to fall off this so-called "fiscal cliff" on Jan. 1 — and that the higher tax rates and more than $100 billion in automatic cuts to the Pentagon and domestic agencies are kept in place.


I saw this story this morning and I just had to chuckle. This thing is riddled with economic illiteracy but I just wanted to point out that it is intellectually dishonest to call the coming reduction in growth of the federal budget "spending cuts." The government is not going to cut spending and it hasn't agreed to cut spending. The $100 billion in "cuts" is actually simply a reduction in the expected growth of spending. So, next year the government is actually going to spend more money than it did this year (can you imagine?) but that number is going to go up by $100 billion less than originally planned. To put things in perspective, $100 billion is about 2% of projected spending. Oh the humanity!

Now, to be fair, the article does pay homage to the capitalists out there by saying that another factor in the recession would be the expiration of the Bush era tax cuts, which are puny and laughable. This however ignores the fact that the real tax is the spending itself. We are going to pay for it one way or another, and so if the taxes are cut while the spending remains constant, we'll simply pay for it with the hidden inflation tax. Economic ignorance, AKA Keynesian Economics, rides again.

PS - this is comedy gold:

CBO is the respected nonpartisan agency of Congress that produces economic analysis and estimates of the cost of legislation.