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Posted at 3:02 PM ET, 03/ 1/2011

Did Ben Bernanke undercut key Dem talking point about GOP budget cuts?

By Greg Sargent

It's being widely reported right now that in testimony before a Senate committee today, Federal Reserve chairman Ben Bernanke undercut the key Dem talking point that GOP budget cuts risk hampering the recovery.

As you know, Dems have been pointing to two new reports from Goldman Sachs and Mark Zandi, both of which found that the GOP's plan for $61 billion in budget cuts could slow economic growth. This has emerged as a major flashpoint in the debate, with Dems trying to frame the GOP cuts as not just draconian, but also a potential job killer.

During his testimony today, Bernanke said the Goldman analysis was off the mark, arguing that the GOP-proposed cuts were not "sufficient" to create the negative impact Goldman predicts. This was a blow to the Dem argument, and right wing media and Republicans pounced on the remark, claiming that Bernanke had "put to rest the Dem talking point that GOP spending cuts will harm economic growth."

But Democrats counter that it's not quite that simple. Later in the hearing, Senator Chuck Schumer pressed Bernanke for clarification, and he did seem to agree with the general argument that too much cutting could hamper the recovery:

Schumer asked Bernanke if he agreed with this sentiment: "Too much cutting too soon would be counterproductive, and would be taking an unnecessary chance with recovery." Bernanke replied: "Yes," before adding the caveat that we also need to show progress on deficit cutting. Bernanke also agreed with Schumer's contention that too much cutting could "snuff out the nacent recovery" and could lead to "job loss."

Now, there's no quibbling with the fact that Bernanke's remarks do undercut two key sources Dems are using -- the Goldman and Zandi reports -- to bolster their case. But Bernanke did not say steep cuts don't pose any threat at all, as is being widely reported right now.

Separately, it represents a bit of progress that the argument over whether steep cuts can actually hamper the recovery, rather than simply over whether they are necessary for deficit reduction, seems to have finally entered the conversation.

UPDATE, 3:22 p.m.: Kevin Drum explains:

That's the big news from Bernanke's testimony: not that he thinks other estimates of job losses are too high, but the fact that he agrees the Republican budget plan will cost jobs and slow growth. That's coming from a Republican Fed chair! How much more evidence do we need that our current budget cutting mania is insane?


By Greg Sargent  | March 1, 2011; 3:02 PM ET
Categories:  House GOPers, Senate Dems, budget  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Cuts for thee, but not for me
Next: Will Americans' support for public workers matter?

Comments

I didn't have time to see the whole thing, but isn't Schumer's question sort of a tautology? He basically asks Bernanke if "too much cutting, too soon, would be too much, too soon?"

It's like if you put a steak in front of me and ask "Is that steak too big for you?" And I respond, "No, it's fine." And you say, "Well, if the steak were too big would it be too big?" Of course the answer is yes.

Posted by: mobrien83 | March 1, 2011 3:08 PM | Report abuse

Greg:
And Bernanke has how much credibility? He was the guy who once proclaimed subprime "contained," remember. And he is a Republican.

Posted by: PhilPerspective | March 1, 2011 3:10 PM | Report abuse

mobrien, yes, but the argument from conservative media right now is that Bernanke's earlier quote completely disputes the contention that the cuts can harm growth at all. which isn't his position, as I understand it

Posted by: Greg Sargent | March 1, 2011 3:11 PM | Report abuse

If the GOP wants to see what too much cutting too soon looks like in real life, point them to what is happening in England, as their economy contracts since the Conservatives took over and enacted "austerity." And then have them look at Germany...

Posted by: suekzoo1 | March 1, 2011 3:13 PM | Report abuse

Greg- I definitely hear you on that. Anyone who would suggest that cuts at some point won't impact the recovery is full of it. I'm not even saying that Bernanke is right (I don't know enough about economics to even venture a very good guess as to at which point cuts impact employment), just saying that the question doesn't really elicit useful information.

Posted by: mobrien83 | March 1, 2011 3:14 PM | Report abuse

gotcha, mobrien, thanks. I think Schumer just wanted to have Bernanke on record admitting that steep cuts can cause job loss. And Phil, Schumer prob thinks it's valuable to have Bernanke of all people saying this

As I've been writing it's hard to get this idea into the conversation at all...

Posted by: Greg Sargent | March 1, 2011 3:18 PM | Report abuse

It is a victory that the public discourse now includes serious discussion about whether budget cuts negatively affect the economy. Not long ago pundits were actually claiming that cuts would cause the economy to take off into the stratosphere. Talking about cuts in the indefinite future is easy, but when it's tomorrow and people actually get laid off, it's easy to see the immediate downside.

Posted by: 12BarBluesAgain | March 1, 2011 3:22 PM | Report abuse

Greg- again, not having seen the whole thing, did Schumer ever try to get him to make a guess about the level of cuts that could hinder recovery? If not, you think it's an oversight on his part or he was worried about the answer and better to just leave the record as "cuts can hinder recovery at some point" rather than get a specific number he might not like?

Posted by: mobrien83 | March 1, 2011 3:23 PM | Report abuse

@Greg: "Did Ben Bernanke undercut key Dem talking point about GOP budget cuts?"

If this is the question then the answer is a resounding YES!

Posted by: sbj3 | March 1, 2011 3:23 PM | Report abuse

@mobrien83 "just saying that the question doesn't really elicit useful information."

Federal Reserve Chairmen are so circumspect that their testimony rarely provides useful information.

Having said that, I believe that one of the lessons of the meltdown will be the limitations of economic models, whether they are used to predict the risk profile of pools of mortgage backed securities or the effect of government spending on the unemployment rate.

Posted by: jnc4p | March 1, 2011 3:26 PM | Report abuse

Has the CBO weighed on this at all? The CBO needs to look at what the House budget would do to our economy.

Posted by: maritza1 | March 1, 2011 3:30 PM | Report abuse

Thanks jnc4p. It is a subject I don't know a lot about so I can really only look at it based on my intuition, which tells me that the government is a big spender in our economy, so at some point if it keeps spending less, that must impact its suppliers, who are often employers of American workers. Plus it is a big employer itself. Presumably, if a lower budget eventually meant lower taxes, some of the slack would be picked up by the private sector. But in the short term . . .

Posted by: mobrien83 | March 1, 2011 3:32 PM | Report abuse

maritza- I think CBO looks only at the budget. When it looks at the economy, it just takes whatever projections its given and bases its predictions about the budget on those. I could be wrong. They also do strange things like refusing to count any fees in legislation as offsets to the cost of the legislation. Very strange.

Posted by: mobrien83 | March 1, 2011 3:35 PM | Report abuse

OT:

"Call 1-866-615-3375 Wednesday or Thursday to reach your Representative and Senators.

"Urge your legislators to co-sponsor the Colorectal Cancer Prevention, Early Detection, and Treatment Act.

"The bill will provide colorectal cancer screenings and treatment for low-income, uninsured and underinsured individuals who are not eligible for Medicare."

http://fightcolorectalcancer.org/

Posted by: sbj3 | March 1, 2011 3:36 PM | Report abuse

The overall numbers don't seem shocking. The US economy is $14T, more or less. Republicans propose $60B in cuts. Pro-rated until Sept. 30, that's 0.6% of GDP, exactly in line with the estimates.

For the cutters out there, take a look at UK (back in recession) and Germany (heading there). They actually want to drive the US back into recession so as to damage Obama's reelection chances.

It's nothing personal. It's just politics.

BB

Posted by: FairlingtonBlade | March 1, 2011 3:37 PM | Report abuse

@sbj3 - At a cost of…?

BB

Posted by: FairlingtonBlade | March 1, 2011 3:40 PM | Report abuse

Lets drag up a bunch of Bernanke quotes regarding the stimulus and see if Republicans agree with all of them too.

"The economy is likely to be weak "for several quarters," Bernanke told the House Budget Committee, and there is "some risk of a protracted slowdown." For that reason, he said, "consideration of a fiscal package by the Congress at this juncture seems appropriate."

The stock market soared in response to Bernanke's remarks, as well as to signs of healing in the troubled credit markets. The Dow Jones industrial average was up 413 points, or 4.7 percent.

Congressional Democrats, led by House Speaker Nancy Pelosi (D-Calif.), are looking to craft a stimulus package of up to $300 billion, and could attempt to push it through Congress soon after the Nov. 4 election."

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/20/AR2008102000872_2.html?sid=ST2008102100283

So, I guess if Bernanke is right this time he was right back then.

Posted by: mikefromArlington | March 1, 2011 3:50 PM | Report abuse

OT-

Its pretty bad when the Yahoo News homepage has a headline about the backlash against Little Hosni Walker. Yahoo being notorious for pimping AP stories.

In the immortal words of the late great Dandy Don Meredith, "turn out the lights, the parties over"...

Posted by: ChuckinDenton | March 1, 2011 3:55 PM | Report abuse

@shrink2 - You need to see this one:

"The Most Dangerous Man in Washington
Timothy Geithner is so in thrall to the banking industry that he could risk America's economic recovery."

"He wants U.S. banks to take the lead in these countries' financial development. His words are worth quoting at length:

'I don't have any enthusiasm for … trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world. … It's the same thing for Microsoft or anything else. We want U.S. firms to benefit from that. … Now, financial firms are different because of the risk, but you can contain that through regulation.'"

http://www.slate.com/id/2286919/

Posted by: jnc4p | March 1, 2011 3:56 PM | Report abuse

OT from Madison:

"Wisconsin Sheriff Pulled Deputies From Capitol, Says They Won't Be 'Palace Guard'

LOL

http://tpmdc.talkingpointsmemo.com/2011/03/wisconsin-sheriff-pulls-deputies-from-capitol-says-they-wont-be-palace-guard.php?ref=fpa

Posted by: suekzoo1 | March 1, 2011 3:58 PM | Report abuse

"Republicans propose $60B in cuts. Pro-rated until Sept. 30, that's 0.6% of GDP, exactly in line with the estimates."

Do I understand this right? $60 billion in cuts would send the economy into a tailspin? if that's true, we're doomed.

Posted by: NoVAHockey | March 1, 2011 4:06 PM | Report abuse

All, Adam Serwer makes the counterintuitive case that Americans' support for public workers may not matter:

http://voices.washingtonpost.com/plum-line/2011/03/will_americans_support_for_pub.html

Posted by: Greg Sargent | March 1, 2011 4:14 PM | Report abuse

In any case, it hardly matters. Maybe it's a million jobs, maybe it's half a million jobs. Maybe it will cost a point of GDP, maybe it will cost half a point of GDP. But considering that the economy is still sluggish and unemployment is extremely high, why are we considering budget cuts that will have any negative effect on jobs and growth? Especially cuts in the only part of the budget that isn't a long-term problem?

That's the big news from Bernanke's testimony: not that he thinks other estimates of job losses are too high, but the fact that he agrees the Republican budget plan will cost jobs and slow growth. That's coming from a Republican Fed chair! How much more evidence do we need that our current budget cutting mania is insane?

http://motherjones.com/kevin-drum

Posted by: pragmaticagain | March 1, 2011 4:25 PM | Report abuse

jnc4, don't get me started, I mentioned him this morning. I'll never understand Obama's decisions in this regard.

Lead the world...I suppose that the Deutsche Börse controlling the NYSE is an example of that?

This administration is so in the thrall of the banking industry they are risking more than America's economic recovery.

Posted by: shrink2 | March 1, 2011 5:07 PM | Report abuse

suekzoo1, are you claiming Germany did NOT make budget cuts? Because the opposite is true. Just last year, Merkel proposed a budget with $84 billion in spending cuts with NO tax increases. This pissed the Obama Administration off to no end. Oh, and German unemployment today is around 7%.

http://dealbook.nytimes.com/2010/06/08/merkel-unveils-german-austerity-package/

Germany’s government-budget deficit for 2010 was 3.5 percent of German GDP, and German government spending rose by 2.9 percent in 2009 and then by 2.2 percent in 2010.

In 2010, the US budget deficit was 10.65% of U.S. GDP – triple the size of Germany’s figure. And US spending increased by a 17.9% in 2009 and then by another 5.8% in 2010.


Posted by: Jake43 | March 1, 2011 5:37 PM | Report abuse

"""How much more evidence do we need that our current budget cutting mania is insane?"""

WE knew their plan wasn't to help America.

Why does the media fall for their BS every. single. time. ???

Posted by: ronnieandrush | March 1, 2011 5:44 PM | Report abuse

German take on Quantitative Easing...

http://www.marketobservation.com/blogs/index.php/2010/11/08/german-finance-minister-wolfgang-schaeuble-has-sharply-criticized-the-us-federal-reserve-s-decision-to-pump-a-further-600-billion-into-the-country-s-ailing-economy?blog=10

Posted by: shrink2 | March 1, 2011 5:45 PM | Report abuse

German annualized GDP growth was 0.8% and 0.4% for the last two quarters of 2010.

British annualized GDP growth was 0.7% and -0.5% for the last two quarters of 2010.

US annualized GDP growth was 2.6% and 2.4% for the last two quarters of 2010.

So much for the canard that the stimulus didn't work.

BB

P.S. Hi Jake. Or claw. Or whatever.

Posted by: FairlingtonBlade | March 1, 2011 9:44 PM | Report abuse

Mortgage rates are historically low you can easily refinance these days your mortgage to 3%. It is the best way to save money. Search online for "123 mortgage refinance" they did 3.54% refinance and free analysis of my current mortgage

Posted by: edgarbell562 | March 2, 2011 3:56 AM | Report abuse

Instead of cuts why not make wall street pay a sales tax? I'll bet just 1% would pay the debt and fund school.

Posted by: tbone7 | March 2, 2011 1:19 PM | Report abuse

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