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Post-stimulus America

I put this in the lead to Wonkbook, but I wanted to give it a post of its own, too. Via Paul Krugman, the economic forecasters at Goldman Sachs have updated -- and downgraded -- their outlook for the U.S. economy. But it's not because anything in the economy has changed. It's because our political system is proving less responsive than they initially thought:

Congress looks increasingly unlikely to extend any more fiscal aid to state governments, despite ongoing shortfalls in state revenues, and they have already let several other items lapse. We are therefore removing from our estimates an assumption of further fiscal stimulus beyond the policies in law (including this week’s unemployment extension), though we continue to expect extension of most of the expiring 2001/2003 tax cuts. This adds almost a full percentage point to the drag on growth from Q4 2010 to Q4 2011 to what we had already estimated.

So GDP growth will be a full percentage point lower in 2011 because, among other things, state governments will be laying off thousands and thousands of employees. And when that happens, of course, Republicans will say that the stimulus failed, just look at how lousy growth is right now.

By Ezra Klein  |  July 22, 2010; 10:18 AM ET
 
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Comments

"And when that happens, of course, Republicans will say that the stimulus failed, just look at how lousy growth is right now."

Of course they will. That's politics!

More to the point, the use of the word "when", when the appropriate word would be "if". There are thousands of major factors and hundreds-of-thousands of minor factors the impact overall economic performance. And prognostication is not an exact science, especially in economics. No matter how sure you are lack of government stimulus is going to put a drag on the economy, until it actually happens, it's an "if", not a "when".

Just sayin'.

Posted by: Kevin_Willis | July 22, 2010 10:30 AM | Report abuse

I thought the PPACA was going to immediately create hundreds of thousands of new jobs in every state. Hmmm... perhaps the "scientific estimates" weren't quite on target -- especially those of Larry Summers, who (in Oct 2009) denounced talk of a second stimulus calling such expenditures wholly unnecessary in a post-health-care-reform America.

Back on 3-Oct-2009, the Huffington Post published that "In his weekly radio and Internet video address Saturday, Obama said his proposed health care overhaul would create jobs by making small business startups more affordable. If aspiring entrepreneurs believe they can stay insured while switching jobs, he said, they will start new businesses and hire workers." Later, on 17-Mar-2010, a blog at the Washington Post reported Nancy Pelosi's statement that passage of Obamacare "will create 4 million jobs, 400,000 jobs almost immediately." At the President's health care reform summit, Pelosi cited support in a study entitled "Health Reform Would Create Jobs in Every State" published on 24-Fed-2010 by economist David M. Cutler of the Center for American Progress.

Those who like URLs might want to follow http://voices.washingtonpost.com/postpartisan/2010/03/is_pelosi_right_on_health_care.html and http://www.americanprogress.org/issues/2010/02/healthreformjobs.html for details.

Posted by: rmgregory | July 22, 2010 10:43 AM | Report abuse

******So GDP growth will be a full percentage point lower in 2011 because, among other things, state governments will be laying off thousands and thousands of employees. And when that happens, of course, Republicans will say that the stimulus failed, just look at how lousy growth is right now.******

I mean, if Senate Democrats don't reform or kill the filibuster in January, they frankly DESERVE the political consequences that will be visited upon them. (of course, they may lose the House, and even if they don't, Pelosi won't have a progressive majority large enough to get major initiative passed, so having a filibuster-free senate will be a moot point by then).

Posted by: Jasper999 | July 22, 2010 11:00 AM | Report abuse

Republicans really need to learn to face the consequences of the policies they advocate. The GOP is following a conscious strategy of choosing to do nothing to make the economy better, and in fact to stifle anything that might make it better, and all in the name of returning to power this fall so they can--return to the policies of borrow, spend and deregualte that got us in this mess to begin with.

It must be so comforting to live in a gated community with all the money you could poossibly want and your very own atmosphere so you don't need to concern yourself with anyone else or the rest of the planet.

Jobs have been created since Obama too office, but with the cumulative loss of 2 million jobs under George Bush, we have a hell of a pile of bricks to dig ourselves out of. And with only one party digging and the other piling more bricks on, it isn't easy.

Posted by: Mimikatz | July 22, 2010 11:06 AM | Report abuse

--"It's because our political system is proving less responsive than they initially thought"--

Maybe a "political system" is the wrong tool to try to run an economy with. Ever think of that, lefty?

Posted by: msoja | July 22, 2010 11:38 AM | Report abuse

Any reasonable estimate/translation of 1 percentage point drag into number of jobs openings not opened or wages not paid out, that sort of thing?

Jasper999: Democrats in Congress might deserve whatever they get, but that's pretty much besides the point. The current and soon-to-be unemployed of America don't deserve any of that. (Except in as much as people the get the government they deserve. I never have thought much of that quip, but there you have it.)

Posted by: JonathanTE | July 22, 2010 11:55 AM | Report abuse

Tell me again, who controls both houses of Congress and the Presidency?

Posted by: ostap666 | July 22, 2010 12:16 PM | Report abuse

"I put this in the lead to Wonkbook, but I wanted to give it a post of its own, too. Via Paul Krugman, the economic forecasters at Goldman Sachs have updated -- and downgraded -- their outlook for the U.S. economy. But it's not because anything in the economy has changed. It's because our political system is proving less responsive than they initially thought:"

If your model assumes multipliers from government spending, then of course you will end up with this result.

"...state governments will be laying off thousands and thousands of employees."

Not a single person needs to be laid off - in many cases slight cuts in compensation can make the state/local entity whole. To the extent there are jobs lost and service levels reduced, the problem is unions refusing to budge on compensation despite imploded state/local budgets.

"Jobs have been created since Obama too office, but with the cumulative loss of 2 million jobs under George Bush, we have a hell of a pile of bricks to dig ourselves out of. And with only one party digging and the other piling more bricks on, it isn't easy."

3,079,000 million net payroll jobs have been lost since Obama took office (133,549,000 Jan09 to 130,470,000 Jun10). 1,080,000 jobs were created under Bush (132,469,000 Jan01 to 133,549,000 Jan09).

Not an impressive peformance under Bush, although Obama needs 4.159 million net jobs created from here to say he broke even with Bush (which I agree will probably happen, I'm just fact checking here).

Posted by: justin84 | July 22, 2010 12:32 PM | Report abuse

So, the US taxpayer should borrow money from the Chinese in order to subsidize the outrageous pay, benefit, and workforce rules of bloated state public employee unions all in a desperate attempt to rehabilitate the first failed stimulus package so that the Democrats can pass another one?

I don't think so.

Posted by: bgmma50 | July 22, 2010 1:13 PM | Report abuse

The desperation of Democrats to make excuses for the results (not) of their stimulus package varies directly in proportion to their dawning realization that it's a big, fat failure.

Posted by: bgmma50 | July 22, 2010 1:35 PM | Report abuse

Buh buh buh but, the stimulus was one-third tax cuts! It must have worked!

Posted by: Lee_A_Arnold | July 22, 2010 5:26 PM | Report abuse

Or is it that bailing-out the lefties at Goldman-Sachs didn't work?

Posted by: Lee_A_Arnold | July 22, 2010 5:29 PM | Report abuse

Cutting gov't spending = people losing their jobs (esp on the state level). This is ok, and maybe even a good thing when a vibrant private sector can make good use of this new pool of workers, possibly in ways that are more productive, but it is most certainly a bad thing when unemployment is already up around 10%. It means less demand, and less sales, which force businesses to cut back even more. This last point is important. Even if the initial cuts don't directly cause job losses (say cuts in unemployment benefits), the loss in aggregate economic activity will result in job losses somewhere down the line.

Posted by: nylund | July 23, 2010 1:43 AM | Report abuse

Dear MiddleClass Americans;
I feel that President Obama has helped us as much as he possibly could given the situation this time. Unemployment extension passed by 59-39? Meaning that it very barely squeezed by. For those of us that were given this lifeline, we ARE very grateful. {BUT} We really need to help the President as much as possible, so that the next time a situation like this arises we'll have both the Senate and Congress on our side with the majority of votes we need.
We HAVE TO understand that the previous administration and most of the Republican Representatives advocates ONLY on behalf of the rich and corporate welfare (for 8 years!) Meaning all of us middleclass Americans are being overlooked and (dare I say it?) SOLD OUT.
The middleclass is facing a perilous times AND IF we don't push hard to save ourselves, the American middleclass, as we know it, will be diminished.
If you surf, anywhere, on the internet, you will notice that false propaganda and negative campaign is being spread against our President and against ANY Democratic Representatives who advocate on our behalf. These are Professional Bloggers(even though they will never admit to it), they are paid to sit and defame, distort against interest of ALL of us middleclass Americans. DON’T TRUST THEM, and keep trying to persuade your friends and family to vote and support the Middle Class. This could be our last stand. The President has his hands full. The US is dealing with problems with North Korea, Iran, and China. Domestically, Republicans are bringing ALL new bills to a standstill. Republican tea party are calling this process of Obstruction to progress "Tea Bagging" Meaning, they are talking pride in Obstructing ANY attempt at progress.
I pray for all of us and God Bless America!

Posted by: goodnephew | July 25, 2010 10:29 PM | Report abuse

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