What the Debt Deal Means for Jobs and the Economy

Author: Drew Gannon

President Obama signed the bill to officially raise the debt ceiling on Tuesday, marking the end of a political stalemate that threatened to irreversibly damage the United States’ financial standing. But how will the new debt deal, which has provisions for up to $2.4 trillion incuts to government spending and entitlement programs over the next 10 years, affect the greater American economy, particularly employment? Jeffrey Bergstrand, a professor of finance at Notre Dame University and a former economist with the Federal Reserve Bank of Boston, spoke with CBS MoneyWatch about implications of the debt agreement for our country’s economic growth and jobs picture.

MoneyWatch: How do you think the cuts in government spending that are part of the debt deal will affect employment in the U.S.?

Jeffrey Bergstrand: They will prevent economic growth over the next 12 months from exceeding 2.5 percent, which means low employment growth. The driving source of demand in the economy is consumption spending, investment spending by firms, and government spending. Consumption spending by households is very tepid right now because we have very high unemployment and a lot of uncertainty about the economy. With the government spending held in check, there’s just very little stimulus to aggregate demand and to the economy… What I’d be really interested in seeing is how much of a delay there is [in enacting these cuts]. A lot of the cuts to government spending are pushed back into the future. I have not seen the details on those since this is just the early stage.

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