"Cuts In House GOP’s Continuing Resolution Could Drive The Unemployment Rate Up One Full Point"
House Republicans rode into the majority with an explicit promise to spur job creation, repeating the mantra “where are the jobs?” over and over during the buildup to November’s election. However, since they’ve come into office, Republicans have spent their time on anything but job creation, bringing up bills repealing the Affordable Care Act and restricting a woman’s right to choose, while pushing for a series of budget cuts that would result in widespread job loss.
In fact, according to a new analysis by economists at Goldman Sachs entitled “Spending Showdowns and Government Shutdowns: Effects on Growth,” the package of spending cuts passed by House Republicans over the weekend will reduce economic growth by 1.5 to 2 percentage points in the next two quarters:
The spending cut package that passed the House of Representatives would have a deeper effect. Under the House passed spending bill, the drag on GDP growth from federal fiscal policy would increase by 1.5pp to 2pp in Q2 and Q3 compared with current law.
This would be a significant drop, as analysts only expect growth of four percent over those quarters. And as CAP economist Adam Hersh pointed out:
From the rule of thumb “Okun’s Law,” a 2 percent increase in GDP is associated with a 1 percent decrease in the unemployment rate. Based on this relationship, the Republican CR could cause unemployment to shoot from 9 percent up to 9.7-10 percent.
Republicans have been trying to claim that their budget slashing plan will lead to job creation (even as Speaker of the House John Boehner (R-OH) shrugged off the obvious negative effect such cuts will have on public employment). But as Sen. Chuck Schumer (D-NY) said, “this nonpartisan study proves that the House Republicans’ proposal is a recipe for a double-dip recession…This analysis puts a dagger through the heart of their ‘cut-and-grow’ fantasy.”
Earlier this month, the Economic Policy Institute released a report finding that the $100 billion in discretionary spending cuts that the House GOP passed last weekend would result in the loss of nearly one million jobs. “Cuts of this magnitude will undermine gross domestic product performance at a time when the economy is seeing anemic post-recession growth,” wrote EPI’s Rebecca Theiss.