November 13th, 2012
Here’s some free advice for the GOP.
Though it may sound a little funny, Sometimes you have to spend to save money. — my twist on an old saying
Republicans want spending cuts, so they should push for more short-term spending.
Is that a self-contradiction? No, it’s a truism.
What Republicans really want is long-term spending cuts. So how do short-term spending increases help them get that? In several ways.
First, let’s use the example of infrastructure spending. If a “Grand Bargain” results in a $100 billion increase in infrastructure investment next year, offset by a $100 billion cut in Social Security or other long-term spending, the immediate impact on the budget and on spending and deficit reduction is zero. Tea Partiers look a those numbers and say that’s not a real spending cut. In fact, the opposite is true.
While the spending/investment in question is a one-time thing (to fix or build a particular road, or bridge), the savings are long-term, resulting in a 10:1 ratio over a ten year budget horizon, or 50:1 over a fifty year budget horizon, which makes sense when talking about long-term programs like Social Security and Medicare.
Not only that, but the short-term spending increase itself has a long-term positive effect. In the case of infrastructure, it makes repairs and upgrades that pay-off big time in terms of both economic growth and reduced future maintenance costs (read Highway to Economic Hell for more about that). Other short term spending measures (e.g., increased aid to states, retraining for the unemployed, or even–gasp–more food stamps spending) also has a large short-term economic impact.
The second advantage of short-term investments is a political/negotiating one: President Obama wants them. So if the GOP wants long-term spending cuts and lower tax rates, it can buy more of those at a very good price by ponying up more short-term spending/investment. With the Bush tax cuts set to automatically expire, that may actually be the GOP’s greatest source of leverage going into the negotiations.
So here’s my advice to the GOP (free, this time), a twist on the old saying:
You have to spend money to save money.