Whatever Happened to Those 700,000 Jobs We'd Lose if We Cut Spending?

Reporting on Politics and Policy.
April 13 2011 9:06 AM

Whatever Happened to Those 700,000 Jobs We'd Lose if We Cut Spending?

Felicia Sonmez spent Tuesday asking congressional leaders an obvious, unsatisfying question . If economists and the Fed were saying that the GOP's continuing resolution would lead to 700,000 fewer jobs, how many jobs would the compromise cost? The GOP's plan cut $61 billion; the compromise cuts around $39.5 billion.

"I don’t think it’s going to be positive, but on the other hand, I think it’s going to be less than what was calculated under the $61 billion in cuts," [Minority Leader Steny] Hoyer said at his weekly pen-and-pad briefing.

Hoyer added that one factor that may make a difference is the composition of the cuts – the $38 billion in cuts, unlike the $61 billion initially proposed by House Republicans, will contain a mix of trims in both mandatory and discretionary spending.

"(Mandatory spending is) a significant part of this, approximately half, and so that may make a different calculation in terms of the job consequences," Hoyer said.

Republicans, too, have yet to answer questions related to the budget compromise’s effect on job growth. For instance, what do the 150 economists that House Republican leaders cited in their defense back in February think about the current deal?

House Majority Leader Eric Cantor (R-Va.) on Tuesday declined to project whether the plan would affect job growth, emphasizing the importance of the country’s debt problem.

"Overall, what we’re saying is we’ve got to create an environment now where we’re projecting a plan to manage down the debt," Cantor said

So basically they dodged the question. Binyamin Appelbaum asked actual economists about this and got more direct answers.

The proposed federal spending cuts, which were decided late Friday, do not amount to much by themselves, about 0.25 percent of annual domestic activity. But they join a growing list of minor problems impeding growth, economists said, including higher fuel prices and bad weather, Europe's creeping malaise and the effect of the Japanese earthquake. 

The impact of those problems, combined with growing cuts in spending by federal, state and local governments, has led some experts who had forecast that the economy would expand by more than 4 percent in 2011 to retreat toward a 3 percent growth rate.

Actually, go back to Cantor's answer on this. What's the impact of spending cuts on jobs? "We’ve got to create an environment now where we’re projecting a plan to manage down the debt." That's what states are doing, too -- austerity plans that cut their debt. How does that create jobs? It cuts the debt! How does debt reduction create jobs? We hear two arguments from Republicans -- it staves off harder choices later (this is the Paul Ryan argument) and it reduces the likelihood of tax increases.

Democrats don't agree with this at all. But there's no desire, post-Stimulus, to make the demand-side argument again. And so everyone agrees that austerity plans won't hurt the economy, again.

David Weigel is a reporter for Bloomberg Politics