900,000 Jobs? Read the Letter, Paul

July 25th, 2013 at 4:34 pm

Here’s a way to get some more jobs in the very near term—900,000 to be precise: cancel the sequester.

That’s what the CBO said in response to Rep. Van Hollen’s request for such an analysis.

 …canceling the automatic spending reductions effective August 1 would increase outlays relative to those under current law by $14 billion in fiscal year 2013 and by $90 billion in fiscal year 2014.

Those changes would increase the level of real (inflation-adjusted) gross domestic product (GDP) by 0.7 percent and increase the level of employment by 0.9 million in the third quarter of calendar year 2014 (the end of fiscal year 2014) relative to the levels projected under current law, CBO estimates.

The budget office goes on to say that if you didn’t replace the deficit savings, higher federal debt could lead to slower growth down he road, so if you’re worried about that, you’d want to replace sequestration with a balanced package of spending cuts and tax revenues that kick in later when the economy isn’t so demand constrained.

But output gaps being what they are, more or less spending by the federal government feeds pretty directly into growth and typically with “multiplier” effects that increase the bang-for-each-buck (e.g., pave a road and you’ve created more business at both the pavement supply company and the diner where the new crew has lunch).

We’ve lately been adding about 200,000 jobs per month, so CBO’s telling us that by cancelling the ill-advised austerity package known as sequestration, we could add four-and-a half months of job growth.

I note that the CBO letter is cc’ed to Rep. Paul Ryan.  Nice idea, but I suspect he’s gonna make like Elvis’ girlfriend did lo these many years ago.

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2 comments in reply to "900,000 Jobs? Read the Letter, Paul"

  1. Jill SH says:

    Which leads me to ask: Has anyone done a study of the “subtractor” (or possibly “divider”?) effect? It seems to me that as the sequester continues, we’d have a lot of natural experiments.

  2. Pablo says:

    A big issue is that “future spending cuts” never happen. Congress has a history of reneging or avoiding cuts previously agreed to. It seems a better approach would be to cap spending but use discretion on where and how to cut. Democrats reject this. They insist that cut be across the board o maximize pain.