CBO: Spend money now!
As Congressional Budget Office director, Doug Elmendorf doesn’t advocate for specific policy proposals. Rather, his office tells Congress how much the policies that they decide on will cost.
But during his testimony in front of the “supercommittee” this morning, Elmendorf came awfully close to pushing Congress to support stimulus spending as part of its deficit reduction charge.
“Credible policy changes that would substantially reduce deficits late in the coming decade and over the long term, without immediate cuts in spending or increases in taxes, would support the economic expansion in the next few years and strengthen the economy over the longer term,” Elmendorf said at the hearing. “There is no inherent contradiction between using fiscal policy to support the economy today, while the unemployment rate is high ... and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential.”
This could be a difficult policy for the supercommittee to follow through on. The 12-member panel’s charge is to find $1.2 trillion in cuts; making space for increased government spending is a challenge in that context.
But Elmendorf made the case that it’s the best approach. “If policymakers wanted to achieve both a short-term economic boost and medium-term and long-term fiscal sustainability, a combination of policies would be required: changes in taxes and spending that would widen the deficit now but reduce it later in the decade,” he said.
Elmendorf did caution, however, that such an approach would need a good amount of political will behind it. It would need to be “sufficiently specific and widely supported” so that individuals and businesses would have confidence in the changes. There needs to be a belief on the part of the public, he urged, that “future fiscal restraint would truly take effect.” With public levels of confidence in Congress at all-time lows, finding faith that the body will act may be nearly as challenging as finding the funding for stimulus in the first place.