http://online.wsj.com/article/SB100...6166563309681964.html?mod=WSJ_Opinion_LEADTop Goldman Sachsonomics More spending didn't create jobs, but now we're told spending cuts will destroy jobs. Washington's spending fight heats up next week as Democrats try to derail House Republican attempts to shave $61 billion from the federal budget. Believe it or not, their favorite argument seems to be that cutting government spending reduces economic growth. Seriously. Chris Van Hollen, the budget leader for House Democrats, declared on CBS's "Face the Nation" last Sunday that the GOP budget cutsa 2% reduction out of $3.6 trillion in fiscal 2011 spendingwould cost 800,000 jobs. Democrats have been repeating this claim endlessly, and on Thursday economists at Goldman Sachs piled on by claiming that the House Republican budget would subtract as much as two percentage points off GDP in the months ahead. Chuck Schumer, the Senator from Wall Street, seized on those numbers and claimed that the GOP cuts will put the economy at "risk of a double dip recession." We asked Mr. Van Hollen where he got that 800,000 figure. He referred us to the Economic Policy Institute, a Washington outfit funded by Big Labor. EPI recently issued a two-page press release predicting that a $100 billion cut in spending would cost just under one million jobs. But hold on there. EPI's estimate hinges on the assumption that every $1 of government spending produces $1.50 of increased economic output, so cutting $61 billion translates into 800,000 fewer jobs. This is nothing more than the old Keynesian "multiplier" back for another political run. As our readers know, this notion assumes that government spending is free to the economy, and that all government expenditures have only stimulative benefits. It also assumes that there are no economic costs to deficit spending, although such spending must be financed by borrowing or higher taxes. Thus if the federal budget were to increase by, say, $1 trillion, then we could magically lower the unemployment rate to 5% or 6%. It's plug and play economics: Plug in spending and multiplier numbers and, presto, you get the job creation or destruction numbers you need for a political talking point. We tried that already. In 2009 the Obama Administration said $814 billion in stimulus spending would create three million new jobs and keep unemployment below 8%. Instead, two years later the economy has two million fewer jobs, and the unemployment rate is still 9%. GDP growth fell $400 billion short of where the White House economists promised it would be. Employment by the end of 2010 was predicted to be 137.6 million as a result of the stimulus, but instead it was 130.2 milliona 7.4 million jobs overestimate. Of all the mistaken Keynesian forecasts, among the least accurate was EPI's. It predicted that the stimulus plan would create five million jobs, two million more than even the White House predicted. In 2009 and 2010 the economy lost some three million jobs, meaning that the EPI analysis was off by eight million. EPI defends its model by saying it was in the range of what other Keynesians, including the Congressional Budget Office, predicted. As for Goldman Sachs, it's important to understand that the bank's economics shop has long been a Keynesian hot house. Goldman economists were among the biggest stimulus cheerleaders, based on a similar multiplier analysis. Goldman's former chief economist, William Dudley, is now president of the New York Federal Reserve and one of the major proponents of easier money to reflate the stock and housing markets. Far more accurate was Harvard's Robert Barro, who predicted that the multiplier from the stimulus plan would be close to zero because $1 of government spending crowds out private spending and investing. Alberto Alesini, another Harvard economist, has found that government spending cuts in several industrialized countries promote growth and that tax increases reduce growth. If he is right, the GOP cuts will help the economy create more jobs. House Republicans are finally acknowledging that there is no Keynesian tooth fairy, that our $3.6 trillion government with its $1.6 trillion deficit has got to get smaller and start paying its bills, and the time to start doing so is now.
SEC comin' down w/ insider trading charges... Ex-Goldman Sachs Director Charged 03/01/11 -- The Securities and Exchange Commission is bringing charges against Rajat Gupta, a former director of Goldman Sachs(GS) and Procter & Gamble(PG) for allegedly providing inside information to Raj Rajaratnam, a hedge fund manager for Galleon Group.
Goldman Sachs implicated... Huge insider trading case trial begins 3/8/2011 - Judge asks jurors if they can be impartial about a one-time billionaire See also: Hedge fund guru Icahn to return clients' money 3/8/2011 - Elder statesman of investors says he's ending fund 'on a high note'
Uh-oh, here we go again - smells like another bailout comin'... Goldman Sachs reports $393m loss on eurozone impact 18 October 2011 - Goldman said investor confidence had fallen
We have not come close to cutting spending anyway. http://www.investors.com/NewsAndAnalysis/Article/588254/201110170805/The-Austerity-Myth-Federal-Spending-Up-5-This-Year.htm The Austerity Myth: Federal Spending Up 5% This Year When Republicans took control of the House in January, they pledged to make deep cuts in federal spending, and in April they succeeded in passing a bill advertised as cutting $38 billion from fiscal 2011's budget. Then in August, they pushed for a deal to cut an additional $2.4 trillion over the next decade. Some analysts have blamed these spending cuts for this year's economic slowdown. But data released by the Treasury Department on Friday show that, so far, there haven't been any spending cuts at all. So Big Labor can rest easy, we are still spending ourselves into decline.
But hey, who cares who was right all along and who is always wrong? That's a minor detail and we must do what feels the best. Afterall, spending our way to prosperity is extremely advantageous to....the government and their fat cat partners who print and receive the magical paper. Would 60 billion even pay for the gun-running operation?
