Did Congress Cut Spending Too Soon in U.S. Debt Deal?

So, as an investor, you're wondering, did Congress pick a bad time to cut federal spending in the U.S. Debt Deal Act passed August 2?

Economists do not universally agree on the answer.

If you're a supply-side economist, or if you're a conservative American, in your view you probably feel Congress didn't cut nearly enough spending, i.e. that the federal government is still too big. That's Rush Limbaugh's view.

If you're a Keynesian economist, or if you're a moderate-to-liberal American, in your view Congress' budget cutting could not have occurred at a worse time: the U.S. economy is already growing at a tepid rate, the U.S. housing market remains very sluggish, the job market remains weak -- the nation is short a staggering 14 million jobs -- and now the U.S. stock market is slumping: already down about 5 percent in the past two weeks, the Dow plunged another 513 points Thursday.

Net result, according to the Keynesian economists? There was not nearly enough demand in the system to increase both U.S. GDP growth and job growth to substantially lower U.S. unemployment before Congress took the ax to the federal budget. Now, with even less spending in the public sector, the U.S. economic recovery will likely slow even more.

The supply-side economists counter that with the federal government out of the way, and with less "uncertainty" regarding federal policy -- there won't be a tax increase in 2011 or 2012 -- companies will now invest, expand, and hire with confidence, and with an increase in new jobs and rising prosperity for all in the United States.

Does the conservative economists' view of what's ahead sound just a tad too rosy? It certainly does to Keynesian economists like Nobel Prize-winner Paul Krugman, also a New York Times columnist.

Krugman, among others, argues the federal government was the one segment of the economy that was helping to fill the gap left by the housing bust and the pullback in consumer spending. (State/local governments have been slashing spending and jobs for the better part of two years.)

The Tea Party/Republican Party coalition is not swayed. Most major companies are cash flush -- they have more than $2 trillion in cash on their balance sheets. Corporate earnings are up, and more than 75 percent of S&P 500 companies reported better-than-expected earnings in the second quarter.

Economic Analysis: In November 2010, the American people returned the Republican Party to power in the U.S. House of Representatives to create jobs. So far, the Tea-influenced GOP has concentrated on attacking collective bargaining, restricting abortion rights, and expanding light bulb freedom -- the freedom to purchase an inefficient incandescent bulb as opposed to an efficient fluorescent bulb.

Meanwhile, the United States is short about 14 million jobs. The American people want answers. The GOP won the U.S. debt deal crisis: federal spending was reduced, so the party has about 9 months to start creating jobs.

The view from here argues having the freedom to purchase those incandescent light bulbs just isn't going to cut it with the American people.

Must Read: For a quick-read on the U.S. economy, check oil's price.