The dominant meme in the MSM is that the spending cuts in the debt deal will hurt the economy by stripping it of government stimulus, rather than help the economy by providing businesses with some hope for a lowered or at least stable tax burden. The New York Times cites as evidence for this depressive effect of government cuts lowered sales at Northrop Grunman:
Northrop Grumman, a major military contractor, is a case in point. The company said Wednesday that second-quarter sales were depressed by the confusion in Washington.
“Uncertainties surrounding the debt ceiling and future defense budgets caused our customers to move more slowly and spend more conservatively,” the chief executive, Wesley G. Bush, told analysts. “We did not see the recovery in spending that one might have expected.”
The deal on the table on Sunday, however, is likely to include reductions in defense spending.
Well of course an industry that is directly dependent on government procurement is going to contract when government buys less from it! Far more important to the economy are those many more businesses that do not feed at the government trough; it is their estimate of future taxes and spending that we should care about. And the last stimulus package certainly didn’t produce very impressive results. That it was poorly designed—aimed at preserving the jobs of public employees rather than allegedly jump-starting private growth—hardly excuses its lackluster performance; its designers have only themselves to blame if the stimulus was misdirected. Of course, stimulus supporters can always argue that we don’t have a baseline control group to judge it against—that things would have been worse without it. But that empirical uncertainty works in the other direction as well: one could as easily argue that without excessive government spending, the economy would’ve picked up before now.