Congress is ravaging the economy all by itself
If you wanted to be (overly) generous in your interpretation of the CBO data out yesterday, you might say that we’re sacrificing the near term for the longer term. That is, we’re accepting lower economic growth rates and higher unemployment now in exchange for lower-budget deficits, which will, according to CBO, be better for growth in the future.
Here’s how they frame the issue:
… less fiscal tightening this year would lead to stronger growth in 2013 but, if not accompanied by sufficient additional tightening in later years, would also restrain real output and income in the middle of the decade and beyond owing to higher federal debt.
I must say, though, that I find this all a bit of a muddle. In 2013, according to the budget office, fiscal cuts — both tax increases like the end of the payroll tax break and spending cuts like the sequester (CBO assumes it will be implemented to the tune of $85 billion in cuts starting next month) — are cutting the economy’s growth rate pretty much in half, from a bit below 3 percent to 1.4 percent.