“As part of our effort to liberate our economy from the shackles of out-of-control spending, the House will soon vote to cut discretionary spending by over $100 billion over the last seven months of this fiscal year.”
– House Speaker John Boehner, Feb. 17.
“The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned.
The note from Alec Phillips, a forecaster based in Washington, was seized in the ongoing US budget fight by Democrats as validating their argument that the legislation approved by the Republican-led House of Representatives last Saturday would do significant damage to the US recovery…
The Goldman analysis also points out that a potential compromise deal with $25bn in spending reductions this year – a more likely scenario – would lead to a smaller drag on growth of 1 percentage point in the second quarter.”
In related news, we seem destined for a government shutdown sometime early next month. Government spending authority is about to expire, and the House and Senate are fighting over the terms of a two-week extension that would give them time to reach a deal. (The House has passed a budget resolution for the rest of the year that cuts $61 billion in discretionary spending, a level that has the Senate balking.)
House Republicans have offered what they call a compromise: A two-week spending bill that cuts $4 billion. However, as Politico reports, “Republican aides say the cuts in the two-week spending bill would be proportional — or pro-rated — to reflect the levels in the first measure.” In other words, it’s not a compromise at all, just a two-week repackaging of their original position.
“GOP aides say the goal is to send Reid a bill that he can’t turn down, either because of the threat of a shutdown or because enough of his politically vulnerable Democrats support the Republican-written measure.
According to a Democrat, a Boehner aide told Senate leadership that House Republicans won’t budge on spending cuts worth $61B over seven months, nor will they accept any spending over the pro-rated version they plan to offer next week. The Boehner aide reportedly told Senate leadership that anything short of that would lead to a shutdown, since the tea party Republicans expect top Republicans to stand firm on the cuts.
On Boehner’s speaker blog, the headline reads:
“Senate Democrats “Reject” Short-Term Spending Bill They Haven’t Seen, Threaten Shutdown”
The post goes on to refer to the Democrats’ “job-crushing spending binge,” part of the Republicans’ increasingly explicit effort to rewrite economic history. As they hope to frame things in the public mind, the biggest economic collapse in 80 years was somehow caused by stimulus spending that occurred after the collapse.
As Boehner put it recently, “Excessive government spending is hampering private sector job creation by spreading uncertainty, eroding confidence, and discouraging private investment, and it has to stop.”
There is no feasible economic mechanism by which that could be true. Long-term, if we don’t address our debt problem, it very well could have economic consequences. But there is no logical or rational means by which government spending can be said to be killing job growth in this country.
In fact, as the Goldman Sachs analysis for its private clients point out, reduced government spending while the recovery is still fragile would seriously damage the country.
– Jay Bookman