Senator Nelson Proposes to Reduce GDP by $120 Billion, Eliminate 800,000 Jobs

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Tuesday, 15 June 2010 04:19

The Washington Post reported on the opposition in Congress to spending more money to aid financially strapped state and local governments or unemployed workers. It highlighted the complaint of Nebraska Senator Ben Nelson that President Obama's request for $80 billion was in appropropriate in a situation where the government has a $12 trillion debt.

It would have been helpful to include some discussion of the economic implications of the opposition to this bill. The economy will be weaker if Congress refuses to appropriate the funds requested by the Obama administration. Assuming a multiplier of 1.5 (most of the proposed spending is generally estimated to have a relatively high mutliplier), not spending this money will reduce GDP by $120 billion.

When it outlined its stimulus plan, the Obama administration assumed that a 1 percentage point increase in GDP creates 1 million jobs. This implies that a loss of $120 billion in output would lead to a loss of 800,000 jobs. It would help readers assess the proposed spending if they understood its likely economic impact.