Caveat emptor, as the Los Angeles Times reports:
Spending cuts approved by House Republicans would act as a drag on the U.S. economy, according to a Wall Street analysis that put new pressure on the political debate in Washington.
The report by the investment firm Goldman Sachs said the cuts would reduce the growth in gross domestic product by up to 2 percentage points this year, essentially cutting in half the nation’s projected economic growth for 2011.
The analysis, prepared for the firm’s clients, represents the first independent economic assessment of the congressional budget fight, which could lead to a government shutdown as early as next week…
A spokesman for House Speaker John A. Boehner of Ohio said the Goldman Sachs report represented “the same outdated Washington mind-set,” comparing it to the thinking behind the 2009 Recovery Act that released federal funds to counter the effects of the recession.
Never mind that it makes Economics 101 sense: if government spending were to actually be curtailed to the degree sought by the Republican-controlled House, the economy would necessarily contract, and the pain would be felt well beyond those directly affected. Regardless of who is spending it, at a certain level, spending is spending. During the worst of the recent recession, government spending was one of the only things keeping the economy as a whole from falling off the cliff. So that’s the question: as the economy just now begins to show signs of a sustained recovery, are we healthy enough to absorb an deliberately inflicted 2% GDP hit?
Or is Goldman Sachs a bunch of commies?
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Goldman Sachs is a bunch of freeloaders.
Same diff.
They did pay back the TARP money though, didn’t they?
I think they were worried that the Feds would dictate their bonuses.
As Bonddad is fond of saying: the basic GDP calculation includes government spending. If you cut it, something else must increase at least as much.
Their companion theory worked so well this past decade with tax cuts for the rich. Look what a Utopian economy that produced.
I may not like Goldman’s influence, but their analysis is right in the heart of mainstream economic analysis.
For those of you who are confused, read the next sentence slowly. Spending cuts are equivalent to tax increases for their impact on short term economic activity. Spending cuts will cripple the economy in the short term.
The longer term impacts of spending and tax policy are more varied, with significant differences depending on what you spend money on, who gets the tax cuts, how taxes are collected, etc.
The US economy is in a DEMAND slump caused by a collapse in the position of the middle class. I think the average wealth decline is 40-50%, which is probably a good explanation for a lot of this free-floating anger.
In this environment, Tax decreases on the POOR would have an dramatic effect on demand. On the other hand tax increases on the WEALTHY would have minimal economic effect because the rich are sitting on their money rather than investing. Have you tried to get a commercial loan recently? Actually, I’m sure the rich would be much better off if the middle classes were stimulated back into spending again so we come out of this deep recession
Economic Multipliers are different for different spending
Government spending on unemployment, health care or infrastructure provides a large, immediate stimulus to the economy because it frees up the middle class to spend.
Imagine how many small businesses would hire another employee or two if Canadian style health insurance were suddenly available. Even better, consider how many individuals would take a chance on starting a home business if they had confidence that their family’s health needs were taken care of.
The problem with Econ 101 is that Republicans and the Wealthy are really only concerned about political power. Science and economics reality have to be denied because fact-based arguments are in the way of dominating the country.
and, if the
onlyquickest way to increase that political power is to further trash the economy, and then gin up the howling that the Kenyan is to blame for all this mess — well, it’s a whole lot easier than fixing anything . . .if the Republican game plan is to tank the economy again and blame it on Obama.
Republicans will be in a better position to make Obama a one-term president if the economy isn’t improving dramatically 18 months from now.
Republicans were given a 2nd chance and screwed it up again.
Obama can say that the economy was on track to recover until Republicans took over the House and started obsessing about destroying public employee unions instead of job creation. The public could turn on them with a vengeance.
The incumbent gets blamed for the state of the economy, and Obama will be the incumbent.
Republicans promised to fix everything. That was their mantra in 2010.
There is also the little problem of who they nominate. The current field looks pretty weak.
Just that Republicans will be OK with it if the economy is still in the doldrums 18 months from now, because that absolutely improves their chances.
You’re giving voters way too much credit to hold Republicans accountable the way you suggest. For one thing, Republicans might have promised to “fix everything,” but they control one half of one third of the government — enough to totally muck things up, but voters are going to look at the last four years with Obama at the helm and decide whether they want to hire him again. If the economy has signs of life and is improving, he’ll be pretty much unbeatable. If it still sucks, he’ll have a real fight on his hands.
Democrats aren’t helping.
Robert Reich had this to say today:
Hardly the clear-cut contrast Democrats need to be making.
Government subsidized corporatism is actually more like fascism.
And when the private sector isn’t producing jobs, and it hasn’t been in spite of all the tax relief for the rich and socialism for Wall Street, what’s wrong with well paying public sector jobs? We small businesses are happy to have anyone with some money to spend come through the door. I don’t see how we’re better off when public sector workers lose their jobs or make lower salaries. The more warm bodies with money to spend, the better off small businesses are. We need more people with good paychecks, not fewer.
Conversely What good does economic growth do ordinary people if it’s increasingly concentrated in the hands of a tiny elite and the rest of us don’t have any more real income than we had 40 years ago? If the middle class is going to become the poor struggling masses, why should we care whether or not the economy is creating more wealth?
If all the benefit of that increased wealth goes only to an increasingly remote, elite minority while the rest of us see no improvement or backsliding in our lives, what’s it to us? If I’m going to have to live in a Banana Republic, I don’t much care if our bloated overlords are richer than anyone else’s.
My overly simplistic analysis was to attack this deficit woe canard. Your analysis is far superior.
my only excuse is that I have been doing a lot of face palming, eye rolling and heavy sighing as I listen to people talk about the deficit and tax/spending policy, Of all the times in life where we should have been thinking about deficits and the debt load–this is not one of them.
People giving primacy to deficits right now don’t understand consumption, recessions, taxes or budgeting.
When bankrupt, spend more money! Yes, it makes perfect economic sense.
If you have to go potty raise your hand and I will give you a hall pass.
INSIDE the desk and then ask someone to volunteer to slam the lid down?
And before you dash off a reply showing yourself to be an idiot, you might want to consider what video is out there recently.
because you will be spending money you don’t have. Never mind that you can make a lot more later by borrowing today.
I believe “Penny Foolish” is the term that best fits your stunted understanding of economics.
but I don’t know if beej knows what a Pound is.
don’t allow taxpayers the opportunity to subsidize your graduate school “education.”
Do NOT attend a public institution such as [redacted] University and above all do NOT accept a stipend or any type of support from federal agencies such as the Department of [redacted] or the [redacted] Foundation.
If you willingly and deliberately do any of these you are a hypocritical self-loathing commie [redacted].
ya know that EPA keeps it socialist communist water.
I know, how about he can’t drive on any interstate road, because the roads are socialist communist.
I know, how about he can’t eat anything because the food is kept safe through the evil government.
Oh and the internet was started with the help of the government, so please get off the net.
So he can’t eat, drink or travel or play online, that seems just about right.
spending all that time isolated from anything that remotely is involved with government.
The Twilight Zone twist is that other people call it a padded room and it would be the state hospital that is his legal guardian. He’ll spend hours in reverie thinking about how nothing in his world is tainted by a government good or service. What a guy.
he wouldn’t last long
I am also not part of a union. Nobody is advocating eliminating public sector jobs. In fact, we’re trying to save state from having to implement layoffs. You’re a nutball.