'There's No Such Thing as a Free Budget Cut'?

An old reliable libertarian maxim was “There ain’t no such thing as a free lunch,” which stood in stark contrast to socialists always boasting of “free” health care or day care or other public benefits. On the PBS NewsHour Friday night, that maxim was turned upside down.

Liberals now campaign against every budget cut by saying it will cost jobs and depress the economy – even though they wouldn’t try to argue that taxing people for a "stimulus" might be seen as the same process in reverse. Economist Joel Naroff may or may not be a liberal, but he coined a goofy new maxim. “There’s no such thing as a free budget cut.” Here’s how it unfolded:

JUDY WOODRUFF: Joel Naroff, I want to ask you about a lot of talk that we're hearing in Washington right now, and that is in the direction of the need to cut government spending.There's no agreement yet. But if there were to be a deal reached to cut government spending by hundreds of billions of dollars, which is, I guess, the goal that some have, would that have an effect on jobs?

JOEL NAROFF: Well, I think the short-term effect on jobs is likely to be somewhat negative. I think we're seeing that already in the local government numbers and the education numbers, where cutbacks in funding is leading to job reductions. In the long term, it may help, but clearly, you reduce the amount of spending on the part of government, whether it's people not getting as much money to spend or businesses not having contracts, all of these things lead to lower levels of demand.

And, in the short run, that's going to lead to, indeed, possibly slower job growth than we would have had. There's no such thing as a free budget cut. There is a cost that will get paid, and that payment comes in the short term in terms of somewhat slower job growth.

Woodruff asked earlier why American companies aren't using their cash reserves to create new jobs:

JUDY WOODRUFF: But we keep hearing that companies have a lot of cash on hand. So, how do you square that with the decision not to put more people on the payroll?

JOEL NAROFF: Well, there's really a disconnect between companies earning money and the companies' stock prices and how they spend it and where they spend it.

We're in a globalized economy right now. A lot of the especially large companies that have a lot of business overseas are looking towards their overseas markets, rather than the domestic U.S. markets to expand. As a result of that, they may be making a lot of money, but they may be putting that money to use somewhere else outside the United States.

So, we used to say, if the stock market goes up or if companies are earning lots of money, that's going to be a sign that the U.S. economy is strong and more jobs are coming. That's not necessarily the case anymore.