The Economic Policy Institute, a top nonpartisan think tank, estimates that the deal struck this weekend to raise the nation’s debt limit will end up costing the economy 1.8 million jobs by 2012. Today the Senate is expected to approve the package passed yesterday by the House and send it to President Obama. But while the unemployment rate remains above 9 percent, the deal does nothing to address chronic joblessness.
The agreement would reduce spending by at least $1 trillion over 10 years, but even the near-term cuts could shrink already sluggish GDP growth by 0.3% in 2012. According to EPI, the plan “not only erodes funding for public investments and safety-net spending, but also misses an important opportunity to address the lack of jobs.” In particular, the immediate spending cuts and the “failure to continue two key supports to the economy (the payroll tax holiday and emergency unemployment benefits for the long term unemployed) could lead to roughly 1.8 million fewer jobs in 2012.”
Top economists and CEO’s have also weighed in against the deal and said that GOP concessions to the Tea Party will cost our economy dearly. Pimco CEO Mohamed El-Erian warned that the deal will lead to less growth, more unemployment, and more inequality. Nobel Prize-winning economist Paul Krugman called the plan “a disaster” and “an abject surrender” that will “depress the economy even further.”
The Center for American Progress’s Michael Ettlinger and Michael Linden argue that while the deal “goes straight in the wrong direction,” Congress can redeem itself by using the so-called “super committee” mandated by the bill to focus on job creation. The committee, made up of six Republicans and six Democrats, is tasked with finding an additional $1.5 trillion of deficit reduction over the next 10 years, and must report a plan by Thanksgiving.
Linden and Ettlinger write, “It’s especially important for the committee to produce a plan that creates jobs and spurs growth because the committee’s proposals will come on top of a set of already-dramatic spending cuts that will have adverse economic consequences.”