“The pound of flesh, which I demand of him,
Is dearly bought; ’tis mine and I will have it.”
“The Merchant of Venice”
Is the goal to do what’s best for the country?
Or do Republicans in Washington simply want their promised pound of flesh from the government, regardless of the consequences?
Mark Zandi, chief economist of Moody’s Analytics and a former economics adviser to John McCain, reports that passage of the budget cuts demanded by House Republicans “would reduce 2011 real GDP growth by 0.5% and 2012 growth by 0.2%. This would mean some 400,000 fewer jobs created by the end of 2011 and 700,000 fewer jobs by the end of 2012…. Significant government spending restraint is vital, but given the economy’s halting recovery, it would be counterproductive for that restraint to begin until the U.S. is creating enough jobs to lower the unemployment rate.”
Last week, a private study by Goldman Sachs produced for its investor clients estimated that passage of the GOP budget cuts would reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year. As Zandi points out, spending does have to be cut over the long term, just as over the long term, taxes have to go up. Addressing our long-term fiscal situation will require that we take both steps.
But neither step is a good idea at the moment for the same reason: It would withdraw money and demand out of an economy already starving for demand.
“This is particularly true given the added threat presented by rising oil prices,” Zandi writes. “Unrest in the Middle East has pushed up the price of crude oil by about $10 per barrel; West Texas Intermediate is selling for almost $100 per barrel, and a gallon of regular unleaded gasoline has risen to about $3.25 nationwide. If sustained, these prices will shave about 0.2% from real GDP growth in 2011, a disappointing but manageable outcome. If oil prices approach $125 barrel, and gasoline reaches $4 per gallon, growth will slow sharply and unemployment will begin rising again. Should fuel prices return to their all-time high near $150 per barrel for oil and $4.50 per gallon for gasoline, the economy would sink back into recession.”
Nonetheless, House Speaker John Boehner and his colleagues continue to rail against what they call President Obama’s “job-crushing spending binge;” they continue to demand the spending cuts that they believe they have coming to them as a result of the midterm elections. The spectre of a forced government shutdown looms. According to Zandi, a short, symbolic shutdown wouldn’t have much impact, but the longer it goes, the more damage it will do:
“A shutdown that lasted into April would be a problem, however. Not only would this disrupt a wide range of government operations and significantly cut the output of government workers, but the hit to confidence could be serious. Consumer, business and investor sentiment is much improved from the depths of the recession, but it remains extraordinarily fragile. A government shutdown lasting more than a week or two could easily undermine confidence as questions grow about policymakers’ ability to govern. This would be fodder for a new recession.”
I don’t believe that House Republicans are willfully, knowingly steering us toward that outcome. But I do believe that through years of rhetoric and rigid ideological discipline, they have convinced themselves that no other course is possible.
– Jay Bookman