Cuts Damage: Even for the Body Politic

"For every $1 the government doesn't spend, economic activity shrinks by as much as $2."

from Insights on Stimulus, Thanks to the Mafia

This insight comes from an Italian study showing that when they freeze spending for government project in areas where Mafia corruption was found, the reduction in government spending leads to an even larger decrease in economic activity in the region than the amount of the initial cut. Not only do private sources not step in to make up for whatever the government doesn't spend, but without the government project there is even less private spending than there would be otherwise.

There are, of course, limits to how much the ratios seen in that study will match the ratios one would see elsewhere, such as in the U.K. austerity programs or the massive budget cuts that the GOP is attempting to foist upon the American people. However, the general mechanism will apply. When you're looking at useful infrastructure improvements [roads, rail, bridges, etc.] and/or programs upon which businesses rely for stability -- such as having their healthy, able-to-work labor supply not bogged down with personally looking after their grandparents -- [Social Security, Medicare, etc.], these things will generally hurt economic activity if government significantly cuts spending.

Runaway tax cuts

"The biggest culprit, by far, has been an erosion of tax revenue triggered largely by two recessions and multiple rounds of tax cuts."

- from "Running in the red: How the U.S., on the road to surplus, detoured to massive debt"

This should be old news. But yet people still blame it on spending growth. Why? How is it that the misinformation of yelling "runaway spending" somehow speaks louder than the truth of "runaway tax cuts"? Why is it so hard to look at the drop in revenue and realize that it's the biggest problem?