bapifar01: Both Boehner and Reid austerity plans could hurt�recovery

Friday, 29 July 2011

Both Boehner and Reid austerity plans could hurt�recovery

With even Democratic House Leader Nancy Pelosi embracing austerity and "shared sacrifice," the battle of trying to focus on jobs and the economy over the deficit seems to have been lost, despite the obvious and often stated desires of the American people.

Cue Adam Serwer, writing at Plum Line:

David Dayen writes that the International Monetary Fund estimates that fiscal contraction?which both plans would do?could increase unemployment.
Think about that for a second. At a time when unemployment is hovering close to ten percent, both major parties in Washington are proposing legislation that could increase joblessness instead of lessening it.

From the point of view of helping the economy recover, this is idiotic. For Republicans, of course, increased unemployment and lower GDP increase the possibility of Obama being a one term president. The reason few people are stating the obvious?that there?s something oddly masochistic about harming the economy at time when so many are unemployed?is that both sides are pushing plans that could damage the recovery.[...]

With both parties competing for the mantle of austerity, they?re acting a bit like two crazed medeival doctors leeching a patient who?s already suffering from catastrophic blood loss.

Let's unpack that a little. In the IMF reference, Dayen is linking to this post from Suzy Khimm, in which she writes:

[A]uthorities such as the International Monetary Fund have dismissed (pdf) the idea that austerity measures would help an economy such as the United States? in the short term, pointing out that few cases exist where sharp cuts led to fast growth in countries where employment was robust, interest rates were high (so the monetary authorities could compensate for the cuts), and exports were strong?conditions that don?t apply to the United States. More normally, they concluded, ?a fiscal consolidation equal to 1 percent of GDP typically reduces GDP by about 0.5 percent within two years and raises the unemployment rate by about 0.3 percentage point.?

Even the IMF say austerity won't work for the United States. Yet here we are, on this path to increase the unemployment rate and make the worst economic situation the nation has faced since the Great Depression even more painful. Welcome to our own lost decade. Let's just hope it only lasts ten years.