Economist’s fodder for Dems: $61 billion spending cut would cost 700K jobs

A new report out Monday from Moody’s Analytics economist Mark Zandi estimates that the House-passed seven-month spending bill, which cuts $61 billion in spending, would cost 700,000 jobs by the end of 2012.

He predicts that this year the bill could cost 400,000 jobs and run the risk of a new recession.

{mosads}Zandi estimates that the CR would reduce real growth in gross domestic product by 0.5 percent in 2011 and by 0.2 percent in 2012.

Congressional Democrats will be sure to cite new estimate as they argue against cuts to spending this year.

House Republicans argue that their bill should become law as part of a “cut and grow” strategy that they say, by removing uncertainty about higher taxes to pay for government spending, would spur spending by businesses.

A spokesman for House Speaker John Boehner (R-Ohio) said Zandi’s analysis is wrong.

“The fact that a relentless cheerleader for the failed ‘stimulus’ — which the Democrats who run Washington claimed would keep unemployment below eight percent — refuses to understand that ending the spending binge will help the private sector create jobs is sad, but not surprising,” said Boehner spokesman Michael Steel. 

Zandi, who backed the 2009 Obama stimulus plan, also concludes that allowing the spending fight to cause a lengthy government shutdown would do deep damage to the economy.

“The economy is much improved and should continue to gain traction, but the coast is not clear; it won’t be until businesses begin hiring aggressively enough to meaningfully lower the still-high unemployment rate. The economy is adding between 100,000 and 150,000 per month — but it must add closer to 200,000 jobs per month before we can say the economy is truly expanding again,” he argues.

“Imposing additional government spending cuts before this has happened, as House Republicans want, would be taking an unnecessary chance with the recovery,” he states.

Zandi’s report echoes one by the left-leaning Economic Policy Institute, which concluded the GOP bill would cost 800,000 jobs. Goldman Sachs has found that it could cause as much as a 2 percent loss in economic growth.

He argues that long-term deficits need to be tackled, but that government borrowing is not crowding out private investment at this point, so reducing spending would not have the effect of quickly expanding credit for the private sector.

Zandi tells investors that he predicts both sides will find a compromise that cuts less than House Republicans are demanding, and that the economy will be able to absorb that compromise.