Last week, House Speaker John Boehner (R-Ohio) spent a great deal of effort touting an economic report from the Republican staff of the Joint Economic Committee. That should be your first warning to step back, take a deep breath and adjust your skepticism meter.

In a nutshell, it argues—using the examples of several small national economies—that huge spending cuts, massive layoffs of public employees and the weakening of unions will create jobs by lowering wages. As Tim Fernholz and Jim Tankersley at the National Journal write:

The paper predicts that cutting the number of public employees would send highly-skilled workers job hunting in the private sector, which in turn would lead to lower labor costs and increased employment. But “lowering labor costs” is economist-speak for lowering wages—does the GOP want to be in the position of advocating for lower wages for voters who work in the private sector?

Dean Baker, co-founder of the Center for Economic and Policy Research (CEPR), points out that the examples of the nations that followed the Republican economic prescription the report uses to back up its claims have been discredited by the International Monetary Fund (IMF) and the Organization for Economic Co-Operation and Development (OECD).

The Republicans tell us that if we make the same sort of harsh cuts in domestic spending as New Zealand and have the government take comparable steps to weaken the power of labor unions then we can look forward to the same sort of economic progress as New Zealand.
This should have people really worried. If we go the OECD and look up New Zealand’s growth in real per capita income since 1986, we find that it came in third from last, beating out only Switzerland and Iceland.

New Zealand’s growth rate since 1986 when it made the cuts is less than 40 percent of per capita income growth in the United States over this period. Asks Baker:

Do the Republicans really wish that we had followed New Zealand’s path back in the mid-80s so that we could be 20 percent poorer today?

Click here for more from Baker.

University of Texas economist James Galbraith tells Fernholz and Tankersley that it is not credible to compare the U.S. economy in 2011 to the 1994 economies of New Zealand and the other nations, the report cites:

The “lessons” will not apply to the United States, which cannot just contract domestically, devalue the dollar (sacrificing our reserve-currency position) and expect the rest of the world to bail us out by buying our exports.

CEPR’s Chad Stone says the theory the report espouses is worthy of a three-decade old description of earlier Republican economic policy.

In essence, the JEC Republican report tries to put an academic gloss on the current Republican voodoo economics claim that government spending is crowding out productive private investment. That argument would have more force if the economy today looked more like the economy in the 1990s expansion—the longest in our country’s history and the last time we had a balanced budget. But in today’s economy, weak demand, not competition for funds, is the much more plausible explanation for inadequate investment.
By the way, one of the key deficit-reduction measures in the 1990s was raising taxes on top earners, over Republican warnings that that would wreck the economy. The JEC Republican report’s claim that spending cuts are the only way to reduce the deficit and that tax increases “are the bane of economic growth” is deja voodoo all over again.

Click here for Stone’s full column.