Bunning is Right on Unemployment: “We Should Pay For It”
Last night, Senator Jim Bunning blocked an effort to pass a one-month “extenders” bill by unanimous consent. The bill includes temporary extensions of unemployment benefits (and related provisions), COBRA health insurance subsidies, Medicare physician payment updates (to block a 21 percent cut), and other smaller provisions – all scheduled to expire on Sunday. The total cost is estimated at about $10 billion.
Bunning voiced his support for these provisions, but declared “I believe we should pay for it,” and promised to thwart efforts not to do so.
We agree with Senator Bunning – this country no longer has the fiscal room to deficit-finance any legislation.
There is an argument that raising taxes or cutting spending to pay for stimulus will undermine said stimulus efforts – but this is only true if the offsets take place immediately. Accompanying stimulus with future offsets can actually reinforce the stimulus. Immediate stimulus will offer to directly boost aggregate demand, while “the anticipation of a future spending reversal generally raises the expansionary impact of today’s fiscal stimulus through its effect on long-term real interest rates” (according to an economic study by André Meier, Giancarlo Corsetti, and Gernot Müller).
Of course, $10 billion by itself is unlikely to have much of an effect in either direction. But deficit-financing it sends the wrong signal to policy makers, the public, and the markets – it tells them all that the United States can and will continue to borrow beyond its means. That unchecked borrowing needs to stop.