Frum Wrong About Budget Cuts

Frum Wrong About Budget Cuts

February 12, 2013
Originally published in National Post

David Frum claims modest automatic budget cuts scheduled to go into effect in the U.S.A. in March will somehow harm the economy if they aren’t cancelled. But those cuts are tiny compared to Canada’s budget cuts in the 1990s, which fuelled economic growth. The cuts are just 0.5% of U.S. GDP. While the Congressional Budget Office says the cuts will reduce growth in the short run, it says they will increase economic growth in the long run by cutting debt burdens.

Mr. Frum wrongly blames a U.S. recession in 1937 on budget cuts. What really harmed the U.S. economy then were bad economic policies such as an undistributed profits tax that discouraged investment, and a 1937 Supreme Court decision that unexpectedly upheld a costly labour law that lower courts had struck down. That court ruling led to a wave of strikes that shrank industrial output.