Yesterday, the Government Accountability Office (GAO) released a 345-page report detailing 34 major areas of wasteful government spending that Sen. Tom Coburn (R–OK) says could save the federal government $100 billion or more every year. Conservatives jumped on the news, with House Majority Leader Eric Cantor’s (R–VA) office characterizing the report as “a mother lode of government waste and duplication that should keep Congress busy for the rest of the year.”
Liberals, however, greeted the report with polite applause bur then predicted nothing would come of it. Why is the left so uninterested in eliminating wasteful government spending? Why can’t progressive politicians agree to cut programs that even the GAO identifies as duplicative or ineffective? The answer can be found in the left’s reaction to two reports issued in the last weeks, one by bailed-out Goldman Sachs and the other by failed stimulus architect Mark Zandi.
On February 23, Goldman Sachs released a report purporting to show that the $61 billion in cuts in the House fiscal year 2011 spending bill would reduce economic spending by up to 2 percent this year. Not to be out done, Zandi released a report on February 28 purporting to show that the same $61 billion in cuts would cost 700,000 jobs through 2012. In stark contrast to the GAO report on wasteful government spending, liberals on Capitol Hill broadly promoted the findings of these two studies as proof that the House budget would harm the economic recovery.
But wait: How can the Zandi and Goldman studies claim that the spending cuts in the House budget will harm the economy if they came out before the GAO study identifying wasteful government spending? What if all, half, or just some of the spending cuts in the House budget are simply cuts to government waste? Surely these facts would change the outcome of Goldman’s and Zandi’s computer simulations, right? Wrong. The Goldman and Zandi reports have absolutely zero relationship to the real world. They both assume that all government spending, no matter how wasteful or duplicative, not only helps the economy grow but does so by large multipliers. This is the exact same thinking that led the Obama Administration to claim that their $1 trillion stimulus would keep unemployment below 8 percent when in fact unemployment rose to 10.1 percent. The Heritage Foundation’s Brian Riedl explains why government spending does not stimulate economic growth:
Congress does not have a vault of money waiting to be distributed. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another.
Congress cannot create new purchasing power out of thin air. If it funds new spending with taxes, it is simply redistributing existing purchasing power (while decreasing incentives to produce income and output). If Congress instead borrows the money from domestic investors, those investors will have that much less to invest or to spend in the private economy. If they borrow the money from foreigners, the balance of payments will adjust by equally raising net imports, leaving total demand and output unchanged. Every dollar Congress spends must first come from somewhere else.
Conservatives believe that the federal government should have limited powers and that—beyond providing for the common defense and enforcing contracts— government should stay out of economic affairs as much as possible. Conservatives believe most federal spending is suspect and should be cut if it has not proven to be effective (such as on programs like COPS, FEMA fire grants, and Head Start). Progressives, on the other hand, see the federal government as a giant jobs program so that any cut to any federal program, no matter how ineffective or wasteful, would be a harm to the economy. If we are ever going to tackle our nation’s true budgetary problems—spending on the entitlement programs Medicare, Medicaid, and Social Security—we must first defeat the misguided idea that all government spending cuts are bad for the economy.