WASHINGTON — Would a partial government shutdown — or the spending cuts needed to avoid it — risk the nation's economic recovery and nascent job creation?
President Obama says it could. Republican leaders in Congress say it wouldn't. Economists are split roughly down the middle.
A stopgap measure will keep the government running through March 18. On Thursday, the White House proposed more than $6 billion in spending cuts as Vice President Biden, White House chief of staff William Daley and budget chief Jacob Lew headed to Capitol Hill for budget discussions with House and Senate leaders from both parties.
As the first potential shutdown in 15 years looms, the debate over cutting the federal budget has morphed to include a dispute about jobs and economic growth.
Obama started the debate last month by saying too much budget-cutting "could endanger the recovery" and a shutdown "would be destabilizing."
"People don't get their Social Security checks. They don't get their veterans payments. Basic functions shut down," Obama said at a news conference after unveiling his 2012 budget. "That, also, would have an adverse effect on our economic recovery."
In the days that followed, several reports criticized House Republicans' vote to cut $61 billion from the 2011 budget by the end of the fiscal year on Sept. 30:
•Goldman Sachs said the measure could reduce economic growth by as much as 2 percentage points from April to September. Obama's budget projects 2.7% growth this year.
•Moody's Analytics forecast that the GOP spending cuts could cost 700,000 jobs by the end of 2012. The nation gained nearly 1 million jobs in 2010 after losing 5 million in 2009.
"Almost everyone agrees that a cut now would be a restraint on growth," says Mark Zandi, chief economist at Moody's Analytics. "The recovery is still fragile. I just think it would be best to wait."
Federal Reserve Chairman Ben Bernanke offered a less dramatic prediction, telling the Senate Banking Committee on Tuesday that under the Republican plan, the economy would contract by about 0.7% and far fewer jobs would be lost.
Still, he said, "the cuts would presumably lower overall demand in the economy. It would have some effect on growth and employment."
More conservative economists began firing back this week. Stanford University economist John Taylor said the spending cuts would be spread over two years, but their psychological impact would be immediate.
"A credible plan to reduce gradually the deficit will increase economic growth and reduce unemployment," he wrote. "By reducing some uncertainty and the threats of exploding debt, the House spending proposal will encourage private investment."
Douglas Holtz-Eakin, a former Congressional Budget Office director and top aide to Republican Sen. John McCain's 2008 presidential campaign, goes further. He says some of the money might never have been spent anyway, and some would come from money the federal government gives to individuals and states rather than government services — further lessening the economic impact.
There's more agreement that a government shutdown or a series of short-term budget extensions could create uncertainty for businesses and disruption for federal agencies.
"You can't sign contracts," Holtz-Eakin says. "You just get paralyzed."
A short government shutdown "won't have long-lasting effects," Zandi says, but a shutdown of more than two weeks — as occurred in 1995-96 — "would start to do damage."
A stopgap measure will keep the government running through March 18. On Thursday, the White House proposed more than $6 billion in spending cuts as Vice President Biden, White House chief of staff William Daley and budget chief Jacob Lew headed to Capitol Hill for budget discussions with House and Senate leaders from both parties.
As the first potential shutdown in 15 years looms, the debate over cutting the federal budget has morphed to include a dispute about jobs and economic growth.
Obama started the debate last month by saying too much budget-cutting "could endanger the recovery" and a shutdown "would be destabilizing."
"People don't get their Social Security checks. They don't get their veterans payments. Basic functions shut down," Obama said at a news conference after unveiling his 2012 budget. "That, also, would have an adverse effect on our economic recovery."
In the days that followed, several reports criticized House Republicans' vote to cut $61 billion from the 2011 budget by the end of the fiscal year on Sept. 30:
•Goldman Sachs said the measure could reduce economic growth by as much as 2 percentage points from April to September. Obama's budget projects 2.7% growth this year.
•Moody's Analytics forecast that the GOP spending cuts could cost 700,000 jobs by the end of 2012. The nation gained nearly 1 million jobs in 2010 after losing 5 million in 2009.
"Almost everyone agrees that a cut now would be a restraint on growth," says Mark Zandi, chief economist at Moody's Analytics. "The recovery is still fragile. I just think it would be best to wait."
Federal Reserve Chairman Ben Bernanke offered a less dramatic prediction, telling the Senate Banking Committee on Tuesday that under the Republican plan, the economy would contract by about 0.7% and far fewer jobs would be lost.
Still, he said, "the cuts would presumably lower overall demand in the economy. It would have some effect on growth and employment."
More conservative economists began firing back this week. Stanford University economist John Taylor said the spending cuts would be spread over two years, but their psychological impact would be immediate.
"A credible plan to reduce gradually the deficit will increase economic growth and reduce unemployment," he wrote. "By reducing some uncertainty and the threats of exploding debt, the House spending proposal will encourage private investment."
Douglas Holtz-Eakin, a former Congressional Budget Office director and top aide to Republican Sen. John McCain's 2008 presidential campaign, goes further. He says some of the money might never have been spent anyway, and some would come from money the federal government gives to individuals and states rather than government services — further lessening the economic impact.
There's more agreement that a government shutdown or a series of short-term budget extensions could create uncertainty for businesses and disruption for federal agencies.
"You can't sign contracts," Holtz-Eakin says. "You just get paralyzed."
A short government shutdown "won't have long-lasting effects," Zandi says, but a shutdown of more than two weeks — as occurred in 1995-96 — "would start to do damage."