Friday, February 25, 2011

Spending Cuts Will Cost Money

Via the Los Angeles Times:

Spending cuts approved by House Republicans would act as a drag on the U.S. economy, according to a Wall Street analysis that put new pressure on the political debate in Washington.

The report by the investment firm Goldman Sachs said the cuts would reduce the growth in gross domestic product by up to 2 percentage points this year, essentially cutting in half the nation’s projected economic growth for 2011.

The analysis, prepared for the firm’s clients, represents the first independent economic assessment of the congressional budget fight, which could lead to a government shutdown as early as next week.

Nonetheless, Republicans are unlikely to easily retreat from their insistence on more than $60 billion in reductions in federal spending as a condition of continuing funding for the government through the rest of the year.

A spokesman for House Speaker John A. Boehner of Ohio said the Goldman Sachs report represented “the same outdated Washington mind-set,” comparing it to the thinking behind the 2009 Recovery Act that released federal funds to counter the effects of the recession.

It’s interesting that this comes from Goldman Sachs, a company that is not known for being left-leaning. And it’s also interesting that House Speaker John Boehner is so quick to dismiss the idea, just as he did with the CBO estimate, because they’re not giving him the news he wants to hear.