Goldman Sees Danger in U.S. Cuts

http://www.cnbc.com/id/41753958


The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned.

The note from Alec Phillips, a forecaster based in Washington, was seized in the ongoing US budget fight by Democrats as validating their argument that the legislation approved by the Republican-led House of Representatives last Saturday would do significant damage to the US recovery.

Chuck Schumer, the Democratic senator from New York, said: “This nonpartisan study proves that the House Republicans’ proposal is a recipe for a double-dip recession. Just as the economy is beginning to pick up a little steam, the Republican budget would snuff out any chance of recovery. This analysis puts a dagger through the heart of their ‘cut-and-grow’ fantasy”.

The Goldman analysis also points out that a potential compromise deal with $25bn in spending reductions this year – a more likely scenario – would lead to a smaller drag on growth of 1 percentage point in the second quarter.

Thereafter it would fade, with “negligible” impact on US output by the end of the year. This could make it harder for Democrats to argue that a more modest dose of spending reductions will have a meaningfully adverse economic impact.

Goldman, which is currently forecasting US gross domestic product growth of 4 per cent in the second and third quarters of 2011, also pegged the cost of a government shutdown to the US economy at $8bn in reduced spending per week, based on the experience of the federal closures of 1995 and 1996.

You know, this really begs the question as to whether or not the US economy can thrive without government expendature. If that's the case, there's a really big problem, wouldn't you think?

You know, Keynes saw savings over and above a planned investment as troublesome. Individuals saving, bad for the economy, hm?

I love this quote from Wikipedia, "Austrian economist Friedrich Hayek criticized Keynesian economic policies for what he called their fundamentally collectivist approach...." Seems to make sense given the uber liberals penchant / yearning for government spending.

Here's the link to Keynesian economics to keep Charles happy: http://en.wikipedia.org/wiki/Keynesian_economics

The questions are how much to cut, where to cut and when to cut. Many economists believe we must be very selective what we cut at this point in time given our present economic conditions lest we end up in a double dip recession.

I am convinced personally that the Republican position is extreme and destructive to our economy. We obviously disagree about what the solutions are. Too bad we cant have 2 identical economies and try out the Democrat and Republican theories. I feel very comfortable in saying that if McCain had become President and adopted Republican prescriptions for the economy we would be in
a much weaker position then we are today.

That most certainly would be an interesting experiment.

What I don't clearly see is the cause and effect of government spending and GDP growth. I know it to be true, but just can't see the line. I'd love to see an illustration whereby a spending agency had lines to the industries it impacts. That certainly would help the Keynesians and democrats cause. Most of us are from Kansas you know.

I dont know if you would believe it if i showed you some correlations. I will work on it however.
I think there are plenty of articles that discuss the need for govt seed money to jump start industry.
Computer industry would be one. I believe you argued that Govt should continue giving Billions to
oil, gas, and coal companies? I assumed you thought govt's role was essential in supporting those industries.

What I HAVE read recently is that even Conservative economists think its absurd to argue that budget cuts will spur future growth as Republicans are arguing right now. Surely you have seen those articles?

The link needs to be government spending and GDP growth.

Check this out: http://www.cbpp.org/cms/index.cfm?fa=view&id=1258 or maybe this one: http://www.google.com/imgres?imgurl=...:0&tx=74&ty=64

Wasnt this thread that i started about the danger of cutting too much and too fast out of our budget? LOL.


Yes i understand. Some of that growth begins with seed money for various industries. Its probably hard to quantify Govt spendings exact affect on GDP growth.