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Home Publications Blogs Beat the Press Kent Conrad Calls for Throwing Millions of People Out of Work

Kent Conrad Calls for Throwing Millions of People Out of Work

Wednesday, 21 April 2010 05:08

That would have been an appropriate title for an article describing North Dakota Senator Kent Conrad's plan for sharp cuts in the budget deficit over the next four years. Conrad's plan would reduce the projected 2015 deficit by approximately 1.6 percentage points of GDP more than President Obama's budget. Since most projections still show the economy to be well below full employment levels of output by this year, the cuts in spending and higher taxes in Senator Conrad's plan will reduce the level of output. If we assume an average multiplier of 1, then output will be 1.6 percent lower in 2015 than would otherwise be the case. If employment falls by the same amount, then Senator Conrad's plan would throw roughly 2.3 million people out of work.

It is worth noting that our children will pay a substantial cost under Senator Conrad's deficit reduction scheme. He proposes especially large cuts for the Pell Grant program that helps children from moderate income families pay for college.

At one point, the article describes President Obama's plan to extend President Bush's tax cut for middle-income families and other tax measures as "expensive tax breaks." The more normal description in news stories is "tax breaks."

Comments (4)Add Comment
written by izzatzo, April 21, 2010 7:45
Conrad from NORAD will defend the US.
From invasions of deficits by spending less.
Zero Sum Terrorists are on the rise.
It's them or us, a tradeoff of demise.

Freedom is not free said the man from Dakota.
Here in the north we produce the annual quota.
Of sugar beets and grain and all kinds of wheat.
Depending on output that deficits will meet.
Again, what is the optimal level.
written by Aditya Savara, April 21, 2010 9:11
1) Again, there must be some optimal level of spending, you have not justified that Conrad's plan will be beneath it and thus "increase unemployment"

2) "Since most projections still show the economy to be well below full employment levels of output by this year" What kind of nonsense is this? 5% unemployment is considered healthy. Do you mean something like 95% Employment? Or do economists define the word "full" differently?

3) Obama is increasing student loans, modifying the terms for student loan payback, including erasing the loans after a certain number of years. I think you would also agree this will be a better system. In this case, the Pell grants are hopefully going to become an obsolete use of tax money anyway.

4) "It is worth noting that our children will pay a substantial cost under Senator Conrad's deficit reduction scheme." Won't our children pay a substantial cost either way? You have to show that 2.3 million people "out of work" (assuming that is even correct) is worse than the alternative (lower deficits). Your post does not do that, and does not reference another source. A major point of contention is this: federal spending does not raise employment (or consumer spending) at a $1 to $1 rate. I think this point should also be addressed in any piece like your post -- that if you want to keep the bigger federal spending, you should also be demanding that they do it in a way that employs people more efficiently. Including: when unemployment is high, government wages should go down, just like anywhere else.
I some doubt on this point
written by Floccina, April 21, 2010 12:24
I some doubt on this point. The historical record is far from clear.
Optimal level of spending
written by AndyfromTucson, April 22, 2010 9:30
The optimal level of Federal deficit spending is the level that gets unemployment down to the 5% range without pushing inflation over the 5% level.

As Keynes observed, when a worker is unemployed the benefit to society of their labor is lost forever. Policies that allow substantial unemployment to persist result in the permanent and substantial losses of goods and services mankind could have otherwise enjoyed. How can it ever make sense to intentionally have substantial portions of the population sit on their hands rather than doing something useful?

The US Govt can print and spend all the money it wants. However, for some reason it imposes on itself an accounting rule that it must either borrow or tax the money it printed back from its citizens before it can spend it. This accounting rule results in permanent losses to US citizens during recessions because it constrains government spending that could have otherwise kept everyone employed who wanted to work.

But what about inflation from printing too much money? Inflation only happens when people want to buy more goods and services than are available and have the money to do so. If a substantial portion of the population is unemployed businesses will hire people to produce more goods to meet increasing demand from printing money rather than raise prices. Significant and sustained inflation will only happen if increased government spending continues after we reach full employment. (By the way, if you dig into the details of the famous hyperinflations they all involved massive cuts to productive capacity that reduced the supply of goods and services available. Printing money wasn't the problem.)

Federal spending should be regulated like you drive your car. Going too slow; step on the gas (spend more). Going too fast; hit the brakes (spend less). Our current system is like watching the fuel gage to determine how hard you press the gas pedal; sure you will save fuel, but you won't get where you want to go.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.