Economy

Republicans Start Calling for Austerity

SK Ashby
Written by SK Ashby

I figured the GOP would at least wait until Trump is out office to call for austerity in the face of a global pandemic, but they apparently aren't wasting any time.

Several Republicans in the Senate are publicly saying we need to pump the brakes on new spending and the Republican Study Commitee is calling for offsetting any new spending.

One Republican Senator said something so stupid I felt compelled to call it out as soon as I read it.

The Republican Study Committee’s Budget and Spending Task Force also put out a blueprint this week to flatten the “debt curve.” The proposal calls for Congress to offset the effect of future coronavirus packages on the debt by cutting and capping spending. [...]

There’s a real danger that at some point we’re going to create serious inflation and seriously higher interest rates,” [Senator Pat Toomey] said. “And the problem is, we don’t know when we’ll hit that point.”

“We should’ve been doing deficit reduction when the economy was good,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget. “Now is not the time.”

It is truly amazing in the worst way to warn of "serious inflation" at a time when consumer demand has completely fallen off a cliff. Republicans routinely (and wrongly) warn of runaway inflation any time they want to argue against progressive fiscal policy, but it makes even less sense now than it ever has.

Demand shocks create deflation, not inflation. Oil recently traded in negative territory, for example, because its value had been deflated; because it became virtually worthless. It's worthless because no one is driving. There's no demand.

Deflation is a result of businesses being unable to even give things away, figuratively speaking, as consumer demand evaporates. That forces them to cut prices and possibly even accept losses to move excess inventory. The "serious inflation" Republicans are warning about is the exact opposite of we're likely going to see.

Look, I'm not a Senator, but I did pay at least a little bit of attention in school.

I agree that Congress should be more careful moving forward, but in my book that means we shouldn't keep flushing money down the unaccountable Paycheck Protection toilet, not cut spending. Imposing austerity at a time when consumer demand has vanished would annihilate what remains of the economy.

While the economy was still in relatively healthy shape, Republicans, who controlled the entire federal government at the time, massively increased government spending and also cut taxes by $1.5 trillion.