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Democrats Jump on Spending Cut Plan That Is a Mini-Version of Larger GOP Spending Cut Plan

So, I’m back in California, safe and sound, and I look on the calendar and see that there are four days until the government shutdown. Well! What shall we do about this, then? Looks like the Republicans have a plan of a two-week extension, as a counter-offer to the Democrats’ one-month extension. The GOP plan would cut $4 billion in spending over those two weeks, unlike the Democratic proposal, which would have kept spending at current levels in the short term while a compromise was worked out for Fiscal Year 2011.

When this first came out, the Democrats scoffed. They ran the numbers. $4 billion in cuts in two weeks, if played out to seven months, is roughly analogous to the $61 billion over seven months sought in the continuing resolution that passed the House. There’s no way they could accept that! And then, er, they did accept it. Reid spokesman Jon Summers praised the Republican two-week extension, I guess because of where the cuts fell – basically $1.2 billion from programs that Obama already scheduled for cutting in his 2012 budget, and $2.7 billion from removing earmarks:

We are encouraged to hear that Republicans are abandoning their demands for extreme measures like cuts to border security, cancer research and food safety inspectors and instead moving closer to Democrats’ position that we should cut government spending in a smart, responsible way that targets waste and excess while keeping our economy growing.

“The plan Republicans are floating today sounds like a modified version of what Democrats were talking about. We’re glad they think it’s a good idea, but we should keep our focus on what we need to do to cut spending and keep our economy growing in the long-term. If we need a little more time to agree on a responsible path forward, we should pass a short-term CR for no longer than the next month. But the ‘my way or the highway’ approach Republicans have been taking in the past only signals a desire for a government shutdown that our country can’t afford. We hope this is a sign that they have abandoned it and will work with Democrats moving forward.”

Maybe this is just some political ju-jitsu above my pay grade. But let me make this point. Goldman Sachs did not release an analysis showing that Republican budget cuts would reduce GDP by 2% based on where the cuts went. It was based on $61 billion getting sucked out of the economy in the next two quarters of the year. That would reduce demand commensurate with shaving 2% off GDP growth. Agreeing to cuts of this magnitude would end the recovery and put the country at zero or low growth and cost hundreds of thousands if not a million people their job.

And that, it appears, is the Democratic game plan. As I said, pro-rate $4 billion in cuts over two weeks to seven months, and you get the same $61 billion, GDP-destroying figure the Republicans want. Democrats are meeting to find additional cuts, and you can see the same pattern emerge the next time the CR runs out – Republicans make a bunch of cuts, Democrats make other cuts, then the Republicans substitute their cuts for the Democratic cuts at the same dollar amount, and Democrats jump on it. And the economy descends into the shitter.

GDP last quarter was under 3%. Shaving 2 percentage points off that gets us into a Japanification situation. A government shutdown would have catastrophic effects on the economy, but staving off a shutdown in exchange for massive budget cuts just trades one set of catastrophic effects for another. We know that the GDP reductions from expectations came almost entirely from cuts at the state and local level. In other words, budget cuts. What Democrats and Republicans are uniting to pull off.

I don’t much care who “wins” such a fight. And I fail to see how crashing the economy in the short-term in any way equals a win. Good policy equals good politics in this case.

Of course, any hope for good policy ended when Obama brokered a tax cut deal without finishing the spending resolutions for the rest of the year. This is the second half of that deal. And it’s going to hit working families hard.

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David Dayen

David Dayen