Editore"s Note
Tilting at Windmills

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March 1, 2011

BERNANKE AGREES: GOP SPENDING PLAN WOULD SLOW ECONOMY.... Congressional Republicans got awfully excited today when Federal Reserve Chairman Ben Bernanke commented on the GOP's spending-cut plan to the Senate Banking Committee. They shouldn't have.

Bernanke also threw some cold water on recent studies by two leading economic forecasting groups that suggested Republicans' proposed $60 billion budget cut would be a major drain on the economy over the coming year. [...]

Responding to questions from Sen. Jack Reed (D-R.I.), Bernanke said that the Fed's analysis suggests smaller economic losses from the spending cuts, reducing GDP by several tenths' of a percent and the number of jobs by "certainly much less than 700,000."

Fine. Different economists have different expectations. There have been multiple, credible analyses in recent weeks, all showing fairly drastic consequences stemming from the Republican proposal, but Bernanke believes the results would be less severe.

But before the GOP celebrates Bernanke's testimony today too much, let's take a closer look at this.

First, the Fed Chairman specifically said he'd like to see deficit reduction "over time," and agrees that cuts now would cause job losses. If Republicans consider that an endorsement of their existing policy, they're not paying attention.

Second, so long as the GOP is embracing a faith-based attitude towards fiscal policy -- slash now, pray it works later -- I'm surprised Republicans would care either way. Imagine if Bernanke had said today that Zandi and Goldman Sachs are completely right and the GOP plan would be devastating. Would that have made any difference? Would Boehner and Cantor step up and say, "Well, I guess we better rethink this?" Of course not. And if evidence and expertise no longer matter, there's no point in seizing on Bernanke's testimony.

And finally, putting all of that aside, the discussion itself fails to appreciate the premise. Kevin Drum explained today:

Maybe it's a million jobs, maybe it's half a million jobs. Maybe it will cost a point of GDP, maybe it will cost half a point of GDP. But considering that the economy is still sluggish and unemployment is extremely high, why are we considering budget cuts that will have any negative effect on jobs and growth? Especially cuts in the only part of the budget that isn't a long-term problem?

That's the big news from Bernanke's testimony: not that he thinks other estimates of job losses are too high, but the fact that he agrees the Republican budget plan will cost jobs and slow growth. That's coming from a Republican Fed chair! How much more evidence do we need that our current budget cutting mania is insane?

Exactly. The more pessimistic projections on the Republican plan show slower economic growth and job losses. The more optimistic projections on the Republican plan also show slower economic growth and job losses.

Why are we even having this conversation?

Steve Benen 3:10 PM Permalink | Trackbacks | Comments (16)

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It isn't insane if your goal is to sabotage the economy and insure that unemployment remains high. If your highest priority is to make Obama a one term president this strategy makes sense. And screw the people; gaining power is their highest value.

Posted by: wordtypist on March 1, 2011 at 3:14 PM | PERMALINK

because its the new catch phrase no matter how little it makes sense, teachable moment, on the table, spending problem, were broke, wmds will kill us all, we are winning, all that sort of easily quoteable repeteaded things that fascinate the media. I still need to know, if we cut 100 billion from the budget and cause more layoffs are we less broke? are we in a better fiscal position.

Posted by: allamr18 on March 1, 2011 at 3:23 PM | PERMALINK

Because the GOP wants to keep the economy in a recession with high unemployment, so they can tell the American people how much the Obama administration, and the Democrats, have failed. So vote Republicans into Congress and the White House!

It has never been about policy, but always about politics, and gaining power.

Posted by: eahopp on March 1, 2011 at 3:23 PM | PERMALINK

Bernanke....hasn't he been wrong before?

Posted by: Richard on March 1, 2011 at 3:31 PM | PERMALINK

The republicans spend the entire hearing blaming Bernanke for just about everything that ails the world, but the minute he gives them something they want to her it becomes gospel.

Leave to the Post to characterize Bernanke's testimony as throwing cold water on the other studies, despite him largely agreeing with them.

Posted by: Holmes on March 1, 2011 at 3:35 PM | PERMALINK

"Hate they neighbor," is the mantra for the modern American, and the GOP and the feudal lords who control them have leveraged this masterfully.

Do you make $10.00 an hour? Then hate the union worker for their health benefits. Unemployed? Then root for the loss of more jobs.

The country has become the willing slaves of an oligarchy; foot soldiers unthinkingly doing the bidding of their masters: suspecting, despising, and envying their fellow man.

Posted by: doubtful on March 1, 2011 at 3:40 PM | PERMALINK

Why are we even having this conversation?

Steve made a funny!

What conversation are you talking about, Steve?

There is no conversation here. Republicans made that clear. If they don't get everything they want, they are going to hold their breath. They simply do not care about facts or consequences.

Posted by: karen marie on March 1, 2011 at 3:44 PM | PERMALINK

One of the foundations of a democratic society is the contract by all the parties involved to participate in the democratic processes in good faith.

Sadly, the Republican party has gone way beyond the threshold at which you cross the line from being a participant in the democratic process to an active saboteur. They lie about the impact of their proposals, they lie about the current state of economy, and they lie about Obama's policies.

In a utopia their actions would permanently disbar them from participation in the democratic process.

Posted by: samsa on March 1, 2011 at 3:46 PM | PERMALINK

An economy with high employment is great news for the corporate world as they can use and abuse employees as they see fit - those who complain or want more money simply get replaced. You'd think a population with more spending power would be appreciated, but the more you cut from the working class, the larger the bonus the Executive Board award itself regardless of the company's finances.

Just imagine what it's like in a state like Virginia where the "employee-at-will" law means that anyone can get fired at any time without any reason given - no collective bargaining either.

We have a surplus! Tax cuts needed. We have a deficit! Tax cuts needed. We're at War! Tax cuts needed. Hey, we're broke! You guessed it...

Posted by: Kiweagle on March 1, 2011 at 3:48 PM | PERMALINK

An article in Rolling Stone (per political carnival) tells how Gov Kasich of Ohio helped sell the state of Ohio toxic assets which caused that states collapsed economy, and the demands by the same Kasich that the public employees give up their pensions - the article would like to know why these people & wall street are not in Jail.

Posted by: j on March 1, 2011 at 3:49 PM | PERMALINK

I swear it is like a slow motion repeat of the Great Depression. I just enjoy pulling up this editorial every time I listen to the "austerity now" crowd. http://www.nytimes.com/2010/06/18/opinion/18krugman.html?_r=1&ref=columnists

Posted by: RomanX on March 1, 2011 at 3:49 PM | PERMALINK

Why are we even having this conversation? We're having it because the US media, with the exception of the Washington Monthly, will almost certainly headline Beranke's testimony as saying that Republican cuts won't significantly hurt employment and growth! John Q. Public will be confused, and opposition to the Republican destruction machine will melt away. THAT'S why we're having this discussion. My question for you, Steve, is why we're not having any discussion about the defunding of NPR. That defunding will eliminate the only alternative to Rush Limbaugh and Fox News that exists throughout rural America. The consequences are as politically disastrous as the destruction of public employee unions, but I don't hear anyone on the liberal side making a fuss.

Posted by: Keith on March 1, 2011 at 4:04 PM | PERMALINK

If Republicans consider that an endorsement of their existing policy, they're not paying attention.

Fortunately for the Republicans, the so-called "journalists" who cover Washington politics aren't paying attention either, so that phony spin might yet prevail.

Posted by: Gregory on March 1, 2011 at 4:05 PM | PERMALINK

You don't have to convince us of the Republican budget will kill the economy. Focus your attention on convincing the villagers. They seem to be totally disconnected.

Posted by: Ron Byers on March 1, 2011 at 4:06 PM | PERMALINK

Well, the Republicans DID say that jobs would be there top priority.

Unfortunately, no one bothered to ask if they meant "create more" or "eliminate more".

Posted by: Bill on March 1, 2011 at 10:19 PM | PERMALINK

Another part of the discussion we're not having is what happens when unemployment remains where it is for an extended period of time. What we will see is major increases in poverty, more young people unemployed, and a continuing increase in the disparity between the uberwealthy and everyone else.

A couple of days ago the head of the Mexican Department of Public Security stated that the reason organized crime has so many foot soldiers is that for the 15 - 25 year age bracket there are no legitimate jobs and no prospects for jobs. If we do the same in the US, it will only be a matter of time (10 years?) before we have our own homegrown organized crime. We already have armed groups on the fringe, the Supremacists and the militias along with the unemployed and unemployable veterans with weapons training, that are dabbling in narcotics. How much will it take to make them better organized? Then, like in Mexico, they will spread out into other more profitable ventures such as kidnapping, car theft and armed robbery. The easy access to heavy weaponry by people who also have military training doesn't make it any better.

And the people who are most at risk, the wealthy, won't be able to hire enough private security to keep themselves safe, especially when crime can outbid them for the services of their bodyguards. Who can afford to pay $4,000 to 6,000 per bodyguard per month? When the whole thing goes down the toilet, it will be too late for the rich to stop it and they will either have to move to somewhere that taxes them (yeah, right) such as Europe or Japan or to somewhere that lacks the luxuries of the US (Latin America, Africa or Southeast Asia) and also is likely to have their own organized crime.

This is a point that needs to be considered.

Posted by: Texas Aggie on March 1, 2011 at 11:30 PM | PERMALINK



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