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.