Photo: flickr commons
Last week there was some uproar over a Goldman Sachs research report that supposedly said that GOP austerity plans would whack 2% from GDP.Because that seemed so extreme, it many suspected it was pro-Democratic propaganda.
We were sceptical, in part because from at least one account we read, it didn’t sound like it was that extreme.
Well, it turns out that the report was misinterpreted. It never said that spending cuts would whack 2% from GDP. Instead…
But it is important to remember that we are talking about a 1½-2 percentage points hit to the annualized growth rate of GDP over 1-2 quarters, not a hit of “as much as 2%” (or $300bn) to the level of GDP, as some have incorrectly reported. The analysis below contains a detailed illustrative calculation to show how we arrive at our estimates.