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The U.S. economy is “slowly becoming more depressed” and spending being pursued by politicians in Washington will just “create more poverty,” says Nobel Prize-winning economist Edward C. Prescott.
Indeed, many economists believe that government spending is the root of the nation’s economic ills, in sharp contrast to the advocates for the welfare state and government economic control who bemoan the automatic cuts under the sequester. They say the spending cuts of $85 billion per year under the sequester program, being reviled by those in favor of an expanding welfare state, are “piddling.”
The latest budget plans from both Democrats and Republicans have U.S. spending continuing to rise, although the GOP plan has it rising significantly more slowly.
Prescott, the 2004 Nobel laureate in economics, told WND: “To spend more will only be to create more poverty. This is an established scientific fact.”
He believes that the current national path is heading toward increased trouble.
“The U.S. economy is currently depressed about 13 percent relative to pre-2008 trend and slowly becoming more depressed,” he said.
Other economic experts lampoon the notion that the automatic cuts are harmful.
Harvard economist Jeffrey Miron told WND, “Anyone who thinks the U.S. federal government cannot usefully cut at least $85 billion per year has never worked for the U.S. federal government.”
Automatic spending cuts of $85 billion are a “piddling cut,” according to Joe Antos, former assistant director for Health and Human Resources at the Congressional Budget Office.
Cuts are not ‘draconian’
For a nation over $16 trillion in debt, $85 billion in annual cuts to a budget process that routinely has rising spending levels is not problem, economists explain.
Miron noted that the recent budget cuts “still leave overall spending well above its level just a couple of years ago.”
“The claim that this can generate ‘draconian’ effects is nonsensical on its face,” he said.
The establishment media, including London’s Daily Mail, claim the cuts “will directly affect 50 million Americans living below the poverty income line and reduce their chances of finding work and a better life.”
Antos, now at the American Enterprise Institute, says such claims are “completely ludicrous.”
“The hallmark of success in America is not to get on a welfare program,” he noted.
“The proposed cuts of $85 billion should be viewed in the context of the unprecedented expansion in spending, and the fact that the federal government is forced to borrow $850 billions per year in order to fund the expansion in spending,” said economist Tino Sanandaji, who holds a Ph.D. in Public Policy from the University of Chicago.
Cuts in failing programs will not result in catastrophe
The Daily Mail declared that the spending cuts “are going to hit Head Start especially hard.” Sanandaji, whose writing on the welfare state and identity politics has attracted national attention, disagrees. He tells WND that cuts to Head Start will be unexciting:
The administration’s own evaluation found no evidence of long term academic gains from the Head Start program. Since the 1960s the state has spent trillions of dollars in programs aimed at fighting poverty. If these programs were effective at reducing poverty, we would not observe that the number of poor Americans is higher now than it has ever been.
The need for Head Start is rarely questioned, but doubts about its effectiveness are profound. The co-founder of the Head Start program, Urie Bronfenbrenner, wrote in 1967 that “the most immediate, overwhelming, and stubborn obstacles to achieving quality and equality in education now lie as much in the character and way of life of the American Negro as in the indifference and hostility of the white community.”
Fast-forward to the present, and Head Start remains subject to scrutiny.
“Head Start simply does not work,” wrote Time Magazine’s Joe Klein in 2011.
Klein claims that the recent Head Start Impact Study, conducted by Obama’s Department of Health and Human Services, shows “the positive effects of the program were minimal and vanished by the end of first grade.”
Russ Whitehurst of the Brookings Institution says that HHS sat on the study and didn’t publicize the results for several years.
“I guess they were trying to rerun the data to see if they could come up with anything positive,” he told Time. “They couldn’t.”
Is more government ever the solution?
The Daily Mail piece, which warns of the supposedly dire consequences of reduced spending, revolves around the city of Baltimore.
Baltimore Housing Commissioner Paul T. Graziano complained to the Daily Mail that his government agency will lose $25 million in funding. Graziano claims that this funding would have helped poor people with housing, cleaned up blighted neighborhoods and provided housing to the 35,000 people on a wait list to benefit from government housing assistance.
“The private sector isn’t going to fix these neighborhoods,” he said.
However, Antos believes that “housing subsidies and bad investments supported by government” are responsible for the troubled housing market and the woes associated with public housing.
While some call for more government action, a financial report commissioned by the city of Baltimore suggests otherwise.
An outside consulting firm prepared the financial report. It shows that government spending, specifically liabilities for retired government workers’ health care costs, are driving the city closer to bankruptcy.