As the deficit debate drones on in Washington, there's one essential question that must be answered: would it be better to cut government spending or raise taxes? In order to make deep deficit cuts, Congress must choose one of these options or a combination of the two. Republicans generally support spending cuts. Would they ultimately benefit economic growth? This question is one of the most contentious in the political discourse, but it gets easier to answer if you qualify for timing.
A Washington Post article today says that Republicans think immediate spending cuts will strengthen economic growth immediately. The article says "many" economic analysts disagree. I should hope so, because the claim is trivially false.
The very definition of gross domestic product shows that cutting government spending will cut growth. As you learn in intro macroeconomics, here's how GDP is calculated:
GDP = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X)
If all other components remain unchanged, then GDP will decline, by definition. That is, unless government spending cuts somehow conjure up growth in the other three components. Could this happen?
How Might Spending Cuts Boost Growth?