The Bite of Austerity

Moneybox
A blog about business and economics.
May 9 2013 9:08 AM

The Bite of Austerity

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MIAMI, FL - MAY 02: People looking for work stand in line to apply for a job during a job fair at the Miami Dolphins Sun Life stadium on May 2, 2013 in Miami, Florida.

Photo by Joe Raedle/Getty Images

This is not exactly BREAKING NEWS but Jackie Calmes and Jonathan Weisman have a good article about the broad consensus that government cutbacks have been reducing employment and GDP:

Hardly a day goes by when either government analysts or the macroeconomists and financial forecasters who advise investors and businesses do not report on the latest signs of economic growth — in housing, consumer spending, business investment. And then they add that things would be better but for the fiscal policy out of Washington. Tax increases and especially spending cuts, these critics say, take money from an economy that still needs some stimulus now, and is getting it only through the expansionary monetary policy of the Federal Reserve.
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A meta-point that is a little underappreciated here is that private sector macroeconomists all use models that embed broadly "Keynesian" assumptions about the behavior of the economy. Government economists at the OMB and CBO do it too, but they're really just following the lead of what you would find at any bank or consultancy. Obviously that doesn't prove that these models are correct—in fact that record of forecasting accuracy isn't stellar—but I don't hear much from anti-Keynesian types about why their preferred models have failed the market test.

Bottom line, according to the main forecasting models: "The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011, according to private-sector and government economists."

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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