Editore"s Note
Tilting at Windmills

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March 9, 2011

AVOIDING A FALSE START.... About a year ago at this time, the U.S. economy looked like it was picking up steam. Economic growth in the first quarter of 2010 topped 5%, and job growth in April of that year was genuinely strong -- not just relative to where we've been, but in its own right.

The good news didn't last. Europe's debt crisis and the end of major stimulus investments led the economy to stall.

Flash forward a year, and we appear to be roughly back to where we were a year ago. There's evidence of significant growth and hints of real progress, including in the job market, and plenty of optimistic projections. But just as European debt rattled markets and ultimately led the U.S. economy to pull back, there are new threats that could derail us this year.

David Leonhardt explains today that the two big hurdles are rising oil prices and conservative economic policies. The NYT journalists believes policymakers aren't "taking these risks seriously enough."

I understand that Republican leaders honestly believe that spending cuts will help the private sector recover. Over the long term, they're right that much of government needs to become more efficient. I'd just implore them to look at the evidence about the short-term effect of cuts.

Interest rates on corporate borrowing remain historically low, so there is no reason to think today's government borrowing is making it harder for companies to borrow. The countries that have tried austerity (England and Germany) are struggling, while the leaders of the country that enacted the most aggressive postcrisis stimulus (China) talk proudly of its success.

Perhaps most persuasively, the people who get paid to make economic predictions say that federal cutbacks would harm the economy this year and next. The research firm Macroeconomic Advisers estimates that the House Republicans' budget would raise the unemployment rate by 0.3 percentage points -- which means about 500,000 lost jobs -- by the end of next year. Economists on Wall Street, which isn't exactly thrilled with the Obama administration, have made similar forecasts.

Nigel Gault, chief United States economist at IHS Global Insight, puts it this way: "I wouldn't be cutting spending over the rest of the fiscal year, because the economy still needs support."

That Macroeconomic Advisers' estimate of 500,000 job losses is a new one. It joins a lengthy list: Fed Chairman Ben Bernanke projects 200,000 job losses; Moody's Analytics chief economist Mark Zandi puts the number at 700,000 job losses; the Economic Policy Institute projects job losses of just over 800,000; and data from the Center for American Progress found the proposal would force roughly 975,000 Americans from their jobs. Goldman Sachs didn't offer specific numbers on job losses, but it believes the GOP plan would cost us up to 2% of GDP, pushing the U.S. economy closer to a recession.

All of these projects have one thing in common: experts agree that the Republican plan would make the economy and unemployment much worse. GOP leaders don't care, but consensus is hard to avoid.

There's ample reason to believe the economy will be far stronger in 2011 than it was in 2010. There are just as many reasons to believe Republicans at the state and federal level will put this recovery in jeopardy.

Steve Benen 3:00 PM Permalink | Trackbacks | Comments (10)

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And the Republicans are happy to put this recovery in jeopardy, simply so they can use it against Obama in 2012. "See, Obama's policies didn't work!"

Posted by: boston chuck on March 9, 2011 at 3:10 PM | PERMALINK

Leonhardt: "I understand that Republican leaders honestly believe that spending cuts will help the private sector recover."

The Republicans do not believe the cuts will help the recovery. Helping the recovery is just the opposite of what they want to do: to create a worse economy for Obama to run on in 2012. The cuts do several things for the Republican: (a) hurt the economy, check (b) play to their ideology, check, and (c) let them pretend to voters that they're being responsible, check.

Posted by: JJF on March 9, 2011 at 3:17 PM | PERMALINK

Putting the recovery in jeopardy is a FEATURE, not a bug.

All the better to gain total control of the government, don't you know...

Posted by: c u n d gulag on March 9, 2011 at 3:25 PM | PERMALINK

The Republican desire to destroy this country and lay it at Obama's feet is nothing short of treasonous.

They are beholden only to big money; their nationalism is false. They have no idea what it means to be an American.

Posted by: doubtful on March 9, 2011 at 3:31 PM | PERMALINK

There are just as many reasons to believe Republicans at the state and federal level will put this recovery in jeopardy.

And reasons to believe that this sabotage isn't exactly their campaign strategy for 2012 would be...?

Posted by: R. Porrofatto on March 9, 2011 at 3:33 PM | PERMALINK

Republican economic policies nearly destroyed the nation and now tea baggers want to give them a chance to finish the job. They haven't changed a bit so what else can we expect from them except more economic disaster.

Posted by: bjobotts on March 9, 2011 at 5:00 PM | PERMALINK
About a year ago at this time, the U.S. economy looked like it was picking up steam. Economic growth in the first quarter of 2010 topped 5%

That would be phenomenal, if it was true.

But its not. Seasonally adjusted GDP growth in the first quarter of 2010 was at a 3.7% annualized rate, which is roughly a 1% increases in the actual seasonally-adjusted GDP in the quarter.

(Seasonally adjusted GDP growth in the fourth quarter of 2009 was at a 5.0% annualized rate, but that's still not a 5.0% increase in the quarter, and its not the quarter you were talking about, which is one in which it was already becoming apparent that the 4Q 2009 spike was a spike, not the start of strong sustained recovery.)

and job growth in April was genuinely strong -- not just relative to where we've been, but in its own right.

Again, no, it wasn't. There was job growth in April -- and an increase in unemployment at the same time -- which could reasonably have been seen as a potentially positive but, if so, very weak sign of future improvement, and indeed there was a small drop in the unemployment rate (and, oddly enough, job losses) in the next few months, but no real big change in the situation that existed prior to April 2010.

Posted by: cmdicely on March 9, 2011 at 5:15 PM | PERMALINK

"I understand that Republican leaders honestly believe that spending cuts will help the private sector recover."

Not necessarily. I think they really don't care what impact the cuts would have, and in fact wouldn't mind sabotaging the recovery going into '12.

Posted by: bob h on March 10, 2011 at 6:19 AM | PERMALINK

Mr. Leonhardt, Germany is not struggling. Its easy to install austerity measures with an export balance as Germany has it.
Don't claim Germany is struggling. It's too easy to debunk this: German unemployment rate is as low as it hasn't been in 20 years - and falling. The prospects are an umployment rate slightly above 5% for 2011.
The GDP grew by a larger rate in 2010 than in a long row of decades. And in 2011 prospects are there will be a 3% growth - with a decreasing population.
Also the absolute number of employed people is at an all-time high.

Stop making it that easy for Republicans to debunk your otherwise correct argumentation.

Posted by: Vokoban on March 10, 2011 at 8:10 AM | PERMALINK

Having the economy wrecked in 2012 is a huge plus for Republicans. With the economy in free-fall last year, they won the House. If they can stall it through next year, they figure they'll win it all. Without, of course, harming *their* constituents (aka the richest 1%) one bit.

Posted by: gifgrrl on March 10, 2011 at 9:30 AM | PERMALINK




 

 

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