The U.S. economy is not in recovery but rather a stagnant pattern. Unemployment numbers are holding steady and the number of jobs created every month is never what economists expect. Home foreclosures are still high and in some states, the value of homes is plummeting at a startling rate. The Republicans and Democrats in Congress say they both have plans to turn things around but ideas from both parties have been met with less than enthusiasm.
About a week ago the House Republicans pushed through a bill to eliminate some federal programs and cut the budgets of others by 40 percent. The House leadership said the bill would save $60 billion. The vote passed with 235 Republicans voting for it, 3 Republicans and 189 Democrats voting against it. The House Republicans claimed victory with the passage of the bill.
Unfortunately for the Republicans, a report by Moody Analytics says the GOPÂ’s plan for cutting the budget will mean 400,000 fewer jobs by the end of this year and 700,000 fewer jobs will be available by the end of next year.Â The report goes on to say, Â“While long-term government spending restraint is vital, and laying out a credible path toward that restraint very desirable, too much cutting too soon would be counterproductive… The economy is adding between 100,000 and 150,000 per monthÂ—but it must add closer to 200,000 jobs per month before we can say the economy is truly expanding again. Imposing additional government spending cuts before this has happened, as House Republicans want, would be taking an unnecessary chance with the recovery.Â”
Republicans, as expected, are not taking this news lightly. Michael Steel, spokesman for Speaker of the House John Boehner (R-OH) said of MoodyÂ’s report, Â“The fact that a relentless cheerleader for the failed ‘stimulus’ – which the Democrats who run Washington claimed would keep unemployment below eight percent – refuses to understand that ending the spending binge will help the private sector create jobs is sad, but not surprising.Â” The author of the report and chief economist Mark Zandi was part of the team that put together the 2009 stimulus package. He was also an economic advisor for John McCain during the 2008 presidential race.
Five days ago Goldman Sachs released a report saying, Â“Under the House passed spending bill, the drag on GDP growth from federal fiscal policy would increase by 1.5pp (percentage points) to 2pp in Q2 and Q3 compared with current law.Â” Mr. SteelÂ’s response to the Goldman Sachs reports said, Â“This is the same outdated Washington mind-set that led to claims that the trillion-dollar ‘stimulus’ would keep unemployment below 8 percent… We don’t need more ineffective ‘stimulus’ spending; we need to get our economy growing again and help the private sector create jobs.Â”
Democrats also got bad news in the Moody report. Zandi says, Â“Policymakers will eventually need to cut annual spending and/or raise taxes to shrink the deficit by $400 billion, bringing it down to a sustainable level at no more than 2.5% of GDP.Â”
The Moody report concludes, Â“Significant government spending restraint is vital, but given the still halting economic recovery, it would be counterproductive for that restraint to begin until the economy is creating enough jobs to bring down the still very high unemployment rate . . . shutting the government down for any length of time would also be taking a big chance with the recovery, not only because of the disruption to government services, but also due to the potential hit to the fragile collective psyche.Â”