Executive Sessionby Senator John Thune
Posted on 2013-03-07
THUNE. Madam President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. THUNE. Mr. President, I ask unanimous consent that I be allowed to speak as in morning business for up to 12 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Economic Growth Mr. THUNE. Mr. President, I come to the floor to speak about spending and its impact on economic growth. I think it is important Washington closely considers the true impact Federal spending and our soaring national debt are having on economic growth.
Over the past few weeks, the White House and the President have been out campaigning across the country and making statements aimed at causing fear and anxiety about the sequester. The White House has painted the sequester--which, keep in mind, amounts to just 2.4 percent of all Federal spending--as something which would lead to an economic disaster in this country.
The White House attempts to cause fear and anxiety have fallen flat. What is more, many of the claims which were made were simply false. In fact, the critics agree.
Bill Keller wrote in the New York Times: ``The White House spent last week in full campaign hysteria.'' The Washington Post issued four Pinocchios with regard to false claims made by Education Secretary Arne Duncan about the sequester's impact on teachers' jobs.
The National Journal states: ``The White House's strategy to exaggerate the immediate impact of the cuts has backfired.'' In Politico: ``For all the hype, spin and blame exchanged over the across-the-board cuts, the reality is they don't mean the sudden economic collapse of America.'' It is important to see the sequester in its overall context. All the hype associated with this could be analogous, I suppose, to all the hype we had yesterday about the weather. Everybody expected we were going to have the blizzard of 2013, and it never materialized. All of the predictions with regard to doom and gloom relating to sequester have also not amounted to very much.
The American people have picked up on that. I think most of them agree, if you look at public opinion polls, that Washington does need to tighten its belt. Washington does need to reduce its spending. Washington needs to lessen the appetite it has to take more of the American taxpayers' money and spend it on what most taxpayers view to be not really necessary.
When you talk about a 2.4-percent reduction in overall Federal spending, most Americans, when they evaluate their own financial situations, come to the conclusion most of them probably could absorb, if they had to, a 2.4-percent reduction in their own spending. They would look at their budgets in very realistic ways. They would scrutinize and examine where they could find spending which is low priority, things they could live without. What we have seen here in Washington from the administration is various heads of agencies and departments going out and trying to identify the biggest, most high- profile thing for dramatic effect in an attempt to scare and frighten the American people.
The American people recognize, and hopefully the administration has come to the conclusion as well, a 2.4-percent reduction in overall Federal spending is something we need to absorb here in Washington, DC, and demonstrate to the American people we are serious about getting Washington's fiscal house in order.
I have long maintained the sequester is not the best way to rein in Federal spending. There is a better way to do so. The reductions called for in the sequester disproportionately impact certain areas of the budget. We all know about the impact on the national security budget, which represents only 20 percent of Federal spending but gets 50 percent of the cuts in the sequester.
I would have preferred a different approach. Given the refusal of President Obama and Senate Democrats to come to the table and find alternative savings, the sequester has gone into effect. The President and most Senate Democrats wanted to see an increase in taxes, something many of us believe would be very harmful to the economy. If you look at what the President has already received in terms of tax increases since he has been in office, it amounts to about $1.7 trillion.
If you look at the last 4 years and all the promises which were made about additional spending, stimulus spending, $1 trillion in additional stimulus spending back when the President first took office, how that would impact the economy, we were told it would take unemployment down below 6 percent. We all know what has happened. We continue to experience sluggish, slow, anemic growth with chronic high unemployment, and we continue to pile massive amounts of debt on the backs of our children and grandchildren.
While the President has been seeking to cause alarm and cast blame with regard to the sequester, one must question the economic arguments he is making. The President and his allies in Congress claim he inherited a bad economy and increased spending is necessary to stimulate economic growth. President Obama's agenda, since he has been in office, has been to spend more, tax more, and regulate more.
As I mentioned earlier, over $1.7 trillion in new taxes has been imposed to be signed into law since he took office. The most recent of that, the fiscal cliff, was $620 billion on January 1. If you add up the tax increases in ObamaCare, there is over $1 trillion there. If you look at the $518 billion in new regulations which have been approved since the President took office, you may see we put an enormous amount of cost, burden, new requirements, mandates, and harm to the economy and the small businesses which create jobs: $1.7 trillion in new taxes, the $518 billion in new regulations.
What has been the impact of those policies? It is pretty clear average economic growth under this President has averaged eight-tenths of 1 percent, .8 percent of the overall share of the economy, GDP. This is less than 1 percent economic growth, on average, in the 4 years this President has been in office.
To put it in perspective, if you look at past Presidents when we have had economic downturns and recessions, President Reagan inherited a bad economy too. When he came to office, we were faced with a series of real economic circumstances: high inflation, high interest rates, and weak growth.
President Reagan put in place policies which were progrowth. He enacted progrowth tax reform, fewer regulations. The economy grew nearly three times as fast as it has under President Obama's watch.
The point, very simply, is if you put the right policies in place, if you make it less difficult and less expensive for our small businesses and our job creators to create more jobs, there are more jobs and economic growth. If you make it more difficult, more expensive, and harder for our small businesses and our job creators to create jobs, there are fewer jobs, less economic growth, and lower take-home pay for American families and workers.
If the Obama recovery was as strong as Reagan's, our economy would be $1.5 trillion larger today, meaning more jobs and more opportunity for Americans. This is assuming if you were getting a comparable level of growth in the economy. The fact is President Obama's spending, tax, and regulatory policies are hamstringing economic recovery, jobs, and opportunity.
Yesterday the Federal Reserve released the latest edition of its so- called beige book or more formally known as [[Page S1242]] the Summary of Commentary on Current Economic Conditions. The beige book stated the 2010 health care law is being cited as a reason for layoffs and a slowdown in hiring.
This report, which examines economic conditions across various Federal Reserve districts throughout the country, stated: ``Employers in several districts cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff.'' It is clear President Obama's policies are the real threat to our economy, not the sequester. A 2.4-percent across-the-board reduction in Federal spending here in Washington, DC, clearly--if you look at the rate of growth we have seen in spending since the President took office of over 20 percent in 2009, in the overall scheme of things, is something which is very reasonable. The American people see this as reasonable overall.
On the contrary, if you look at policies the President has put in place, whether this is more stimulus spending, growing government, higher taxes, more regulations, we are getting a very different picture of what those policies look like in terms of the impact on our economy. We have seen negative impacts, high-level spending, and high annual deficits during the President's first term. As a consequence of these statistics, there is slower economic growth.
I ask unanimous consent to have printed in the Record an opinion piece by Michael Boskin, which he wrote earlier in the week. In this article Mr. Boskin makes the case that spending cuts will actually help the economy: ``Standard Keynsian models that claim a quick boost from higher government spending showed the effect quickly turns negative. So the spending needs to be repeated over and over, like a drug, to keep the hypothetical positive effect going.'' Mr. Boskin points to an academic study which found returning spending to pre-crisis, pre-Obama levels--about a 3-percent reduction in spending as a percentage of our entire GDP--would increase short-term economic growth because expectations of lower future taxes and debt lead to higher incomes, more private spending, and investment.
[From the Wall Street Journal, Mar. 4, 2013] Larger Spending Cuts Would Help the Economy (By Michael J. Boskin) President Obama's most recent prescription for economic growth--more government stimulus spending, new social programs, higher taxes on upper-income earners, subsidies for some industries and increased regulation for all of them--is likely to have the same anemic results as in his first administration.
Recall: The $825 billion stimulus program did little economic good at a cost of hundreds of thousands of dollars per job, even based on the administration's own inflated job estimates. Cash for Clunkers cost $3 billion merely to shift car sales forward a few months. The PPIP (Public-Private Investment Program for Legacy Assets) to buy toxic assets from the banks to speed lending generated just 3% of the $1 trillion that the program planners anticipated.
And now? Mr. Obama proposes universal preschool ($25 billion per year), ``Fix it First'' repairs to roads and bridges, plus an infrastructure bank ($50 billion), ``Project Rebuild,'' refurbishing private properties in cities ($15 billion), endless green-energy subsidies, and a big hike in the minimum wage. The president and Senate Democrats also demand that half the spending cuts under sequestration be replaced with higher taxes.
These proposals are ill-considered. The evidence sadly suggests the initial improvement in children's cognitive skills from ``Head Start'' quickly evaporates. Higher minimum wages increase unemployment among low-skilled workers. A dozen recent studies in peer-reviewed journals, including one by the president's former chief economic adviser Christina Romer, document the negative effects of higher taxes on the economy.
As for adventures in industrial policy, former Obama economic adviser Larry Summers wrote a memo in 2009 about the impending $527 million loan guarantee to Solyndra and other recipients of government largess. ``The government is a crappy v.c. [venture capitalist],'' he wrote, in what is also the best postmortem. In 2010, Harvard economist Edward Glaeser concluded in the New York Times that infrastructure is poor stimulus because ``It is impossible to spend quickly and wisely.'' Federal infrastructure spending should be dealt with in regular appropriations.
Will more spending today stimulate the economy? Standard Keynesian models that claim a quick boost from higher government spending show the effect quickly turns negative. So the spending needs to be repeated over and over, like a drug, to keep this hypothetical positive effect going. Japan tried that to little effect, starting in the 1990s. It now has the highest debt-to-GDP ratio among the countries of the Organization for Economic Cooperation and Development--and that debt is a prime cause, as well as effect, of Japan's enduring stagnation.
The United States is heading in this wrong direction. Even if the $110 billion in annual sequestration cuts are allowed to take place, the Congressional Budget Office projects that annual federal spending will increase by $2.4 trillion to $5.9 trillion in a decade. The higher debt implied by this spending will eventually crowd out investment, as holdings of government debt replace capital in private portfolios. Lower tangible capital formation means lower real wages in the future.
Since World War II, OECD countries that stabilized their budgets without recession averaged $5-$6 of actual spending cuts per dollar of tax hikes. Examples include the Netherlands in the mid-1990s and Sweden in the mid-2000s. In a paper last year for the Stanford Institute for Economic Policy Research, Stanford's John Cogan and John Taylor, with Volker Wieland and Maik Wolters of Frankfurt, Germany's Goethe University, show that a reduction in federal spending over several years amounting to 3% of GDP--bringing noninterest spending down to pre-financial-crisis levels-- will increase short-term GDP.
Why? Because expectations of lower future taxes and debt, and therefore higher incomes, increase private spending. The U.S. reduced spending as a share of GDP by 5% from the mid- 1980s to mid-1990s. Canada reduced its spending as share of GDP by 8% in the mid-'90s and 2000s. In both cases, the reductions reinforced a period of strong growth.
An economically ``balanced'' deficit-reduction program today would mean $5 of actual, not hypothetical, spending cuts per dollar of tax hikes. The fiscal-cliff deal reached on Jan. 1 instead was scored at $1 of spending cuts for every $40 of tax hikes.
Keynesian economists urge a delay on spending cuts on the grounds that they will hurt the struggling economy. Yet at just one-quarter of 1% of GDP this year, $43 billion of this year's sequester cuts in an economy with a GDP of more than $16 trillion is unlikely to be a major macroeconomic event.
Continued delay now leaves a long boom as the only time to control spending. There was some success in doing this in the mid-1990s under President Clinton and a Republican Congress. More commonly the opposite occurs: A boom brings a surge in tax revenues and politicians are anxious to spread the spending far and wide.
In any case, the demand by Mr. Obama and Senate Democrats that any dollar of spending cuts in budget agreements this spring (to fund the government for the rest of the fiscal year and when the debt limit again approaches) be matched by an additional dollar of tax hikes is economically unbalanced in the extreme. Those who are attempting to gradually slow the growth of federal spending while minimizing tax hikes have sound economics on their side.
Mr. THUNE. To wrap up and put this into perspective, Federal spending has increased nearly 20 percent since 2009. Sequestration, the across- the-board spending reductions which will occur under the sequester, amount to a reduction of 2.4 percent out of a $3.5 trillion budget. Even with the sequester, the government will spend more this year than it did last year.
I would hope the President would begin to be honest with the American people about the impact of his tax hikes, his spending, and new regulations are having on our Nation's economic growth and recovery; more important, coming to the conclusion and being honest with the American people about that, change his policies; actually come to a conclusion based on what we have seen, 4 years of his policies, which is slow growth, and a .8 percent economic growth on average for the past 4 years. There is also, as I said before, high unemployment, chronic unemployment--which is still around that 8-percent level--and massive amounts of new debt we are piling on the backs of future generations.
Not only do we need the President, in terms of his rhetoric, to be honest with the American people, we need him to change his policies and take an honest look at the relationship between spending and economic growth. This shows the sequester will not have long-term negative impacts on the economy. We need to put the Federal Government on a stable fiscal path in order to create the kind of economic certainty needed in this country to grow the economy and create jobs.
Less spending by Washington, DC, actually will lead to greater economic growth, a private economy, more jobs for the American people, and higher take-home pay.
I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Arizona.