Steven C. Kyle, an expert in macroeconomics and government policy, and a professor of management at Cornell’s Dyson School of Applied Economics and Management, discusses the impact of impending, mandatory “sequestration” cuts to federal spending – and widespread contradictory thinking on Capitol Hill.
Kyle says:
“Never underestimate the ability of politicians to hold two completely contradictory thoughts in their heads at the same time.
“Deficit spending? Horrors. We must cut that spending now. Cut defense spending because of the sequestration deadline? Horrors. We must restore that spending now!
“Deficit spending is alleged to be the cause of our current economic malaise and getting rid of it through spending cuts is supposed to restore confidence and generate growth and employment. On the other hand, cutting defense spending is alleged to threaten our growth and we must restore the cuts or renewed growth is at risk.
“The truth is that when there is high unemployment and interest rates are zero, almost any kind of spending will boost the economy and create jobs. However, defense spending is markedly inferior as an economic boost due to the fact that so much of it is spent overseas and on equipment with few employment implications. Infrastructure spending, on the other hand, is a great way of stimulating the economy, not only creating jobs now but increasing productivity in the future. Besides, we are going to have to repair our roads sooner or later anyway, and what better time than when interest rates are zero? Do the politicians want us to wait until the roads need rebuilding instead of just repair? Or when we have to pay 5 percent interest for the money to do it rather than zero?
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