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Austerity Goolsbee Ignores Own Statistics to Make Case for Deficit Reduction

Austan Goolsbee (photo: Center for American Progress Action Fund)

Austan Goolsbee of the Council of Economic Advisers responds to today’s horrendous GDP numbers.

The downward revision in the first quarter to 0.4 percent further reflects the slowdown of economic growth due to substantial headwinds faced in the first half of this year. Additionally, the annual revision to GDP showed that the Great Recession – the worst on record – was even deeper than originally estimated.

We are at a fragile moment in the world economy and cannot afford to do anything to undermine our recovery at a moment such as this. The unemployment rate is unacceptably high and faster growth is needed to replace the jobs lost in the downturn. This report underscores the need for bipartisan action to help the private sector and the economy grow – such as measures to extend the payroll tax cut and unemployment insurance, pass the pending free trade agreements with re-employment assistance for displaced workers, and create an infrastructure bank to help put Americans back to work. It also underscores the need to end the uncertainty surrounding the risk of default and put in place a balanced approach to deficit reduction that phases in budget cuts, instills confidence, and allows us to live within our means without shortchanging future growth.

I agree with most of that except for the last sentence, which contradicts everything before it. Goolsbee calls for a “first, do no harm” approach to the economy. He says unemployment is unacceptable and nothing to undermine the recovery can be done. Then he says that we should increase demand through a combination of public investment, tax cuts at the low end to put money into people’s hands, more automatic stabilizers for the jobless and increasing exports (for the purposes of this, pretend that the corporate-written trade deals would increase exports).

Then he says we have to cut spending. He wants the spending cuts phased in, but any cuts would undermine all of the job creation strategies Goolsbee has forwarded here. In the very next paragraph, Goolsbee explains how cutting government spending put a drag on GDP growth:  [cont’d.]

Notable contributions to real GDP growth in the second quarter included net exports (0.6 percentage points) and fixed investment (0.7 p.p.). Defense spending added 0.4 p.p. to GDP, but this gain was offset by declines in state and local government (-0.4 p.p.) and nondefense spending (-0.2 p.p.). Consumer spending rose just 0.1 percent at an annual rate, with a steep decline (23 percent) in motor vehicle consumption accounting for the weakness. The downward revision to first quarter GDP from 1.9 percent to 0.4 percent reflects lower contributions from inventory investment and imports.

Declines in spending caused a majority of the drag on the economy. The solution to that cannot possibly be less spending!

Bob Borosage of CAF writes today that Congress “is fiddling while Rome burns.”

As the grim economic numbers show, this economy is barely moving, crippled by government cutbacks that once more cost jobs. 25 million people are in need of full time work, a number that is growing as the economy is failing to generate enough jobs even to employ those coming into the labor market for the first time […]

Every plan before Congress will make the economy worse. Every plan tramples the priorities of the vast majorities of Americans.

Every plan that sucks money out of the economy is a net negative for the economy. And that’s every plan on the table, whether you put a hashtag in front of it and call it compromise or not. Real GDP remains below the peak in the pre-recession period of 2007. We haven’t even gotten back to zero, let alone grown. You can dodge and say that this is the mere result of slow recoveries to financial crises, or you can tell the truth. We don’t have enough demand in the economy. And we’re poised to take more demand out.

CommunityThe Bullpen

Austerity Goolsbee Ignores Own Statistics to Make Case for Deficit Reduction

Austan Goolsbee of the Council of Economic Advisers responds to today’s horrendous GDP numbers.

The downward revision in the first quarter to 0.4 percent further reflects the slowdown of economic growth due to substantial headwinds faced in the first half of this year. Additionally, the annual revision to GDP showed that the Great Recession – the worst on record – was even deeper than originally estimated.

We are at a fragile moment in the world economy and cannot afford to do anything to undermine our recovery at a moment such as this. The unemployment rate is unacceptably high and faster growth is needed to replace the jobs lost in the downturn. This report underscores the need for bipartisan action to help the private sector and the economy grow – such as measures to extend the payroll tax cut and unemployment insurance, pass the pending free trade agreements with re-employment assistance for displaced workers, and create an infrastructure bank to help put Americans back to work. It also underscores the need to end the uncertainty surrounding the risk of default and put in place a balanced approach to deficit reduction that phases in budget cuts, instills confidence, and allows us to live within our means without shortchanging future growth.

I agree with most of that except for the last sentence, which contradicts everything before it. Goolsbee calls for a “first, do no harm” approach to the economy. He says unemployment is unacceptable and nothing to undermine the recovery can be done. Then he says that we should increase demand through a combination of public investment, tax cuts at the low end to put money into people’s hands, more automatic stabilizers for the jobless and increasing exports (for the purposes of this, pretend that the corporate-written trade deals would increase exports).

Then he says we have to cut spending. He wants the spending cuts phased in, but any cuts would undermine all of the job creation strategies Goolsbee has forwarded here. In the very next paragraph, Goolsbee explains how cutting government spending put a drag on GDP growth:

Notable contributions to real GDP growth in the second quarter included net exports (0.6 percentage points) and fixed investment (0.7 p.p.). Defense spending added 0.4 p.p. to GDP, but this gain was offset by declines in state and local government (-0.4 p.p.) and nondefense spending (-0.2 p.p.). Consumer spending rose just 0.1 percent at an annual rate, with a steep decline (23 percent) in motor vehicle consumption accounting for the weakness. The downward revision to first quarter GDP from 1.9 percent to 0.4 percent reflects lower contributions from inventory investment and imports.

Declines in spending caused a majority of the drag on the economy. The solution to that cannot possibly be less spending!

Bob Borosage of CAF writes today that Congress “is fiddling while Rome burns.”

As the grim economic numbers show, this economy is barely moving, crippled by government cutbacks that once more cost jobs. 25 million people are in need of full time work, a number that is growing as the economy is failing to generate enough jobs even to employ those coming into the labor market for the first time […]

Every plan before Congress will make the economy worse. Every plan tramples the priorities of the vast majorities of Americans.

Every plan that sucks money out of the economy is a net negative for the economy. And that’s every plan on the table, whether you put a hashtag in front of it and call it compromise or not. Real GDP remains below the peak in the pre-recession period of 2007. We haven’t even gotten back to zero, let alone grown. You can dodge and say that this is the mere result of slow recoveries to financial crises, or you can tell the truth. We don’t have enough demand in the economy. And we’re poised to take more demand out.

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David Dayen

David Dayen