Let me preface this post by saying that I am a fan of Vox.com. Why wouldn’t I be? I’m a middle-class urban left-winger who studied political science in college and reads central bank research papers for fun. Also, Vox has some clever writers and a lot of good content, and their work to make academic research more comprehensible to non-academics is admirable.
However, that does not let them off the hook for another very bad piece of gimmickry. In fact, it makes the said gimmickry much worse, because they clearly have writers and editors who understand economics who should have stopped these silly projects.
I talked about their tax calculator a couple of weeks ago and explained that only showing the taxation side of the ledger is a highly misleading view of fiscal policy implications.
Well, they’ve done it again, and it’s just as bad. This calculator allows you to decide which government programs to cut in order to hit Ted Cruz and Donald Trump’s comically large austerity targets.
They’ve made a similar mistake with this calculator as they did with the last one. The tax calculator treated only one side of the impacts of fiscal policy; this cuts calculator gives a static view of a dynamic and interconnected set of choices.
What does this mean? Government spending goes somewhere—even if you think cash transfers, for example, are bad and create disincentives to work (which is a dubious viewpoint in light of some recent evidence), people do actually spend that money. Or, to take Ronald Reagan’s classic dog-whistling example, the “Welfare Queens” driving Cadillacs would have stimulated the domestic auto industry, if they had existed.
The result of this is that cutting government spending is not a free lunch. Taking this money out of the economy reduces GDP (for the five people who still believe in expansionary fiscal contraction, I refer you to this chart). For the terrible, awful, no-good, very-bad calculator, that means every time you cut, you reduce tax revenue, and this forces you to cut further.
If we lived in a world of static and independent policy choices, Trump or Cruz could cut roughly 5% out of GDP each year from the government budget and get it into balance. In reality, cutting 5% of GDP from government spending would send the US into an austerity-induced recession, with obvious knock-on effects for tax revenues. Any attempt to dig out of the fiscal hole solely through cutting will make the hole deeper.