Economists measure the effect of austerity in terms of multipliers. In normal times, when an economy is booming and some austerity is imposed, one dollar in spending cuts, produces about a 50-cent reduction in GDP. This is partly because a central bank simultaneously reduces interest rates to encourage business borrowing. Also, many businesses remain confident that demand will increase and they continue to invest. Under these conditions austerity reduces deficits and balances national budgets.
Conditions now are very different. Interest rates cannot go lower. Both consumers and businesspeople are justifiably nervous that sequestration or other cuts will produce more layoffs, slower hiring and reduced consumer demand.
Olivier Blanchard, chief economist for the International Monetary Fund, which strongly supported the severe austerity program underway in Greece, has admitted that the adverse effects of austerity were greatly underestimated. The actual multiplier was about 1.5 rather than 0.5. As a result, GDP reduction was greater than the spending cuts and deficits have increased.
GOP and tea party conservatives should be very concerned that their demands for immediate and large spending cuts will have a similar disastrous effect here in the U.S. False treatments can be worse than the original disease.
See "Growth Forecast Errors and Fiscal Multipliers" at www.imf.org/external/
Do not pass budget, do not get paid
I believe if Congress can't pass a budget then they should not be paid. It is their fault that this has not been taken care of in a timely fashion.
They should not be scaring the elderly and the sick or federal employees by saying they would be the ones to not get paid or get their monthly checks if the budget is not passed.
They need to pass a budget to save money, not spend more. The people cannot give any more. They themselves should not get any raises until we are in a much better place than where we are.