Bernanke: GOP budget cuts would cost 200,000 jobs

Chairman of the Federal Reserve Ben Bernanke testifies before the House Committee on Financial Services on Capitol Hill in Washington March 2, 2011. REUTERS/Kevin LamarqueFederal Reserve

Chairman Ben Bernanke said on Wednesday a Republican spending cut plan would not cause a big dent to U.S. economic growth, but could cost around 200,000 jobs over two years.

That estimate is at odds with losses of as much as 700,000 cited by Democrats but also clashes with forecasts of job gains Republicans have pointed to.

Bernanke said that a $60 billion cut along the lines being pursued by Republicans in the House of Representatives would likely trim growth by around two-tenths of a percentage point in the first year and one-tenth in the next year.

“That would translate into a couple of hundred thousand jobs. So it’s not trivial,” he said in response to questions from members of the House Financial Services Committee.

Pressed on how such job losses would affect the recovery, Bernanke said that in spite of concerns about the longer-term budget deficit, the Fed’s focus is on reducing unemployment.

“I would like to see job creation,” he said. “What I have been trying to focus on is, we have got to keep our eye on deficit reduction, but we need to think about it in a long-term framework.”

The Republican-run House has passed a budget bill for the current fiscal year that includes $61 billion in spending cuts, but majority Democrats in the Senate say the reductions would endanger the economic recovery.

Any spending legislation must be approved by both chambers of Congress before it can become law.

Members of Congress are locked in a bitter fight over the budget, with Republicans, spurred on by Tea Party fiscal conservatives, having made deep spending cuts and immediate deficit reduction a top priority.

The Senate on Tuesday approved a House-passed bill to extend government funding for two more weeks that contains $4 billion in relatively non-controversial spending cuts.

House Republicans see that as just a down payment on their larger goal, and while the bill averts an imminent shutdown of the federal government, it does nothing to resolve the ongoing budget tussle.

COMPETING FORECASTS

In November, the Fed launched a controversial $600 billion bond-buying program to boost the recovery and spur job growth. Although the unemployment rate dropped to 9 percent in January, Fed officials say it remains too high.

Bernanke on Wednesday said a failure to bring down unemployment could end up undercutting the recovery. Economists expect a report on Friday to show the jobless rate edged up to 9.1 percent in February.

Bernanke’s estimate that 200,000 fewer jobs would be created represents just a little more than 0.1 percent of the current U.S. labor force. Over the past 12 months, the economy has created 82,000 jobs per month, on average, although economists believe the pace of employment growth is quickening.

Economist Mark Zandi, who has advised congressional leaders of both parties, estimated that the Republican proposal would lead to 700,000 fewer jobs by the end of 2012.

House Speaker John Boehner‘s office earlier this week cited an analysis by prominent Stanford University economist John Taylor saying estimates of job losses were flawed.

“A credible plan to reduce gradually the deficit will increase economic growth and reduce unemployment by removing uncertainty and lowering the chances of large tax increases in the future,” Taylor wrote.

Goldman Sachs economist Jan Hatzius estimated that the larger spending cut bill would trim 1.5 to 2 percentage points off of the annualized economic growth rate in the second and third quarters of this year.

Some of that pullback was already built into Goldman’s GDP forecast for 4 percent annualized growth in the second quarter.

“Federal government spending enters directly into the Commerce Department’s GDP estimates, so unless there is a full offset from other components of GDP a reduction in federal government spending must reduce GDP on impact,” Hatzius wrote in a note to clients.

Bernanke told lawmakers said he did not know why the Fed’s analysis was different than those of private forecasters.

In a separate speech in New York later on Wednesday, Bernanke said the improving economic climate should take some of the pressure off of state and local governments who have been under severe fiscal strain following the downturn.

However, the modest pace of growth means it will be a while yet before state and local fiscal conditions return to normal, although municipal bond markets are calmer now that steps are being taken to address budget shortfalls, he said.

Copyright © 2011 Reuters

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8 Responses to "Bernanke: GOP budget cuts would cost 200,000 jobs"

  1. griff  March 3, 2011 at 12:23 pm

    Why any one would believe Ben “there is no housing bubble” Bernanke is beyond my comprehension. He might just as well be a weather forecaster.

    The only growth we’re seeing right now is in food and fuel prices, as well as corporate profits (due to offshoring) and the stock market.

    Our deficit will be larger than our GDP in just a couple of months, and we’re already hearing about more quantative easing. Our total long term liabilities total more than the GDP of the entire planet.

    Pumping more money into an economy where we no longer produce any thing will do nothing to create jobs without legislation aimed at reducing the regulatory burden, reducing the tax burden, and bringing high paying white and blue collar jobs back to American soil.

    The idea that a single entity like the Federal Reserve can spur job creation by printing endless rivers of fiat money is ludicrous at best, fatal at worse. Job growth will only happen when incentives for offshoring and outsourcing are removed and “Buy American” means some thing again.

    • Almandine  March 3, 2011 at 12:47 pm

      Please don’t trash the weather folks, so.

    • woody188  March 3, 2011 at 3:01 pm

      You said it. Rising energy and food costs are going to squash the economy more than any public sector job losses. And the rise in fuel costs causes the trade deficit to soar. The high cost of fuel during the last decade has been called the largest wealth transfer in history.

  2. bogofree  March 3, 2011 at 1:25 pm

    Make that 200,001 job losses as just maybe they can toss BB into the unemployed pool.

    • griff  March 3, 2011 at 9:56 pm

      Hear! Hear!

  3. Carl Nemo  March 3, 2011 at 2:12 pm

    Hey, I say go for it! If we could slash the entire 1.6 trillion deficit for another couple of “million jobs” it would be worth it because the government could afford to pay the unemployed a decent living wage until the 12th of forever on a fraction of that amount of money.

    The average citizen simply doesn’t have any comprehension of what 1,600 billion dollars means with each billion equaling a thousand million dollars. Folks this is serious money that’s virtually unpayable debt and these criminally disposed a*sclowns we have in Congress have run the tab up to 14.5 trillion!

    When Ronald Reagan took office in 1980, the public debt was 880 billion with responsible folks of that era in a swoon over that amount. Our representatives seem to be executing an engineered ‘Globalists ‘r Us’ inspired mission to put this nation into a “death spiral” from which there is to be no recovery. They’d all love to be reps for life in their freshly minted ‘banana republic’…no?!

    Carl Nemo **==

  4. DejaVuAllOver  March 3, 2011 at 10:20 pm

    I heard a great statistic that puts the cost of the financial sector bailouts in REAL terms. The $12.5 TRILLION we spent on the banks, total, includes the $700 billion TARP, but also all the much larger interest, phony money printing, opportunity costs, free loans to all kinds of near-bankrupt financial firms, etc. etc. of the bailout, equals $18 million PER DAY since Jesus Christ died on the cross until now. That’s a F%$K of a lot of money.

    I think it was Matt Taibi who did the analysis and unfortunately I can’t remember all the details, but the math is sound.

    • Carl Nemo  March 3, 2011 at 10:26 pm

      Nice to read a post from you DejaVuAllOver. It’s been quite some time. Hopefully you’ll post more often as in the past. : )

      Carl Nemo **==

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