Chris Wallace pushed the myth that government spending has not helped the economy in order to dismiss a Goldman Sachs report concluding that the House GOP budget plan would be a “drag” on the economy. But economists have said that the economy would be far worse today without the 2009 stimulus.
Goldman Sachs Says GOP Spending Bill Will Be A “Drag On GDP Growth”
ABC News: Goldman Sachs “Says Spending Cuts Passed By the House” Will Be A “Drag On GDP Growth.” ABC News reported:
A confidential new report prepared by Goldman Sachs for its clients says spending cuts passed by the House of Representatives last week would be a drag on the economy, cutting economic growth by about two percent of GDP.
“Under the House passed spending bill [which cut spending by $61 billion],” says the report, which was obtained by ABC News, “the drag on GDP growth from federal fiscal policy would increase by 1.5pp to 2pp in Q2 and Q3 compared with current law.”
The report, which is signed by Goldman economist Alec Phillips, goes on to predict that the House-passed bill is unlikely to become law because it won't pass the Senate and, in any case, the president threatened to veto it.
More likely, the report says, is a deal to cut spending by $25 billion this year, followed by a cut of $50 billion next year.
Even those more modest spending cuts, Goldman Sachs predicts, will cut economic growth rates by one percent of GDP. [ABCNews.com, 2/23/11]
Wallace Dismisses Goldman Sachs Report By Pushing Canard That The Stimulus Failed
Wallace Claims Stimulus Failed To Portray Goldman Sachs Report As “Discredited.” From the February 27 edition of Fox News Sunday:
JUAN WILLIAMS (Fox News contributor): This is taking a hatchet to the budget. It's not doing something that's either going to produce jobs or grow the economy. And that's not Juan Williams talking, that's Goldman Sachs talking. So, when you stop and think about --
WALLACE: Wait, wait. The Goldman Sachs number has been somewhat -- that's been somewhat discredited.
WILLIAMS: No, no it's not.
WALLACE: All they did -- all they did is they took the multiplier and they said if you cut so much --
WILLIAMS: Yes --
WALLACE: -- and there's a number that's going to mean so many fewer jobs.
WILLIAMS: Thank you, Chris.
WALLACE: Yes. If that had worked, then the stimulus, we'd have unemployment under 8 percent. [Fox Broadcasting Co., Fox News Sunday, 2/27/11]
In Fact, Goldman Sachs Is Not Alone In Warning That Proposed Spending Cuts Will Reduce Economic Activity
Mark Zandi: It's “Premature To Engage In That Kind Of Budget Cutting.” CNNMoney.com reported:
Economist Mark Zandi of Moody's Analytics said Sunday that if all $61 billion in proposed cuts for the rest of this year were enacted, the economy's growth could be reduced by half a percentage point. Many forecasters expect the economy to grow at around 3.5% this year.
By the end of the year, Zandi said, those spending cuts could cost the economy between 400,000 and 500,000 jobs.
“I think it's premature to engage in that kind of budget cutting,” Zandi said. “We can't do that, I don't think, until the economy is off and running.” [CNN.com, 2/27/11]
AP: Spending Cuts “Pose A Growing Threat” To The Economy. Associated Press business writers painted a gloomy picture in their analysis of the potential effects of spending cuts:
Deep spending cuts by state and local governments pose a growing threat to an economy that is already grappling with high unemployment, depressed home prices and the surging cost of oil.
The reduction in federal spending has a direct effect on states and municipalities. They depend on money from Washington to keep schools operating, put police officers on the street and subsidize public services like job training. The end of federal stimulus programs is also widening state deficits. [The Associated Press, 2/25/11]
And Economists Agree That The 2009 Stimulus Lowered Unemployment And Boosted GDP
CBO: Stimulus Bill Raised GDP 1.1 To 3.5 Percent. A February 2011 report from the nonpartisan Congressional Budget Office (CBO) estimated that the American Recovery and Reinvestment Act (ARRA) “raised real (inflation-adjusted) gross domestic product (GDP) by between 1.1 percent and 3.5 percent” and "[l]owered the unemployment rate by between 0.7 percentage points and 1.9 percentage points." From the report:
CBO estimates that ARRA's policies had the following effects in the fourth quarter of calendar year 2010:
- They raised real (inflation-adjusted) gross domestic product (GDP) by between 1.1 percent and 3.5 percent,
- Lowered the unemployment rate by between 0.7 percentage points and 1.9 percentage points,
- Increased the number of people employed by between 1.3 million and 3.5 million, and
- Increased the number of full-time-equivalent jobs by 1.8 million to 5.0 million compared with what would have occurred otherwise, as shown in Table 1. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers). [Congressional Budget Office, February 2011]
CEA: ARRA Raised Employment “By Between 2.5 And 3.6 Million.” In its fourth quarterly report on ARRA, the White House's Council of Economic Advisers (CEA) stated that “as of the second quarter of 2010, the ARRA has raised employment relative to what it otherwise would have been by between 2.5 and 3.6 million. These estimates are broadly consistent with the direct recipient reporting data available for 2010:Q1.” [CEA report, 7/14/10]
Private Analysts Estimate That Stimulus Increased GDP By 2.1 To 3.5 Percent. In its fifth quarterly report on ARRA, the CEA estimated that the stimulus “has raised the level of GDP as of the third quarter of 2010, relative to what it otherwise would have been, by 2.7 percent.” CEA also provided a chart showing that private analysts estimate that the stimulus boosted GDP between 2.1 and 3.5 percent:
[Council of Economic Advisers, 11/18/10]
Private Analysts Estimate That Stimulus Increased Employment By 2.1 To 2.5 Million. In its report, the CEA provided the following chart showing that private forecasters estimate that as of the third quarter of 2010, the stimulus increased employment between 2.1 and 2.5 million:
[Council of Economic Advisers, 11/18/10]
WSJ: Economists Say Economic Recovery Has Been Driven By Stimulus. The Wall Street Journal reported on January 14:
Economists surveyed by The Wall Street Journal are increasingly optimistic about the pace of the recovery, predicting the U.S. will grow at better than a 3.2% annual rate in each quarter this year.
“The U.S. economy appears to have successfully navigated the adjustment from a recovery driven primarily from economic stimulus and inventory rebuilding to one driven by private domestic demand and rising exports,” said economists at Wells Fargo & Co. “Three percent growth looks pretty good, particularly with housing stuck in low gear.” [Wall Street Journal, 1/14/11]