Fiscal Cliff Would Put Massachusetts In Economic Slump
BOSTON (CBS) – So let’s say Congress does nothing and we just keep going right over the fiscal cliff.
It’s a doomsday scenario according to many economists who believe the nation will slide back into recession.
WBZ NewsRadio 1030’s Joe Mathieu reports
But how about here in Massachusetts, where the economy is stronger than in many other parts of the country?
“The honest answer is nobody knows,” Harvard economics professor Benjamin Friedman told WBZ NewsRadio 1030.
“We don’t know the extent to which Massachusetts residents will start to cut back on their own spending if their tax payments actually go up on January 1. To be sure, it’s a good thing that our unemployment rate is lower here than the rest of the country. It’s a good thing we didn’t have the kind of downturn in our housing market that the rest of the country had.”
But that doesn’t change a few difficult realties, beginning with the fact that Massachusetts is home to some of the world’s biggest defense contractors, which stand to lose tens of millions of dollars if the Pentagon budget is cut.
The defense industry here employs more than 130,000 people, according to the Donahue Institute.
Researchers at George Mason University say some 40,000 of these jobs could be lost over the next two years if the cuts take effect.
But Harvard economics professor Dale Jorgenson told WBZ that would happen gradually, because existing contracts would still have to be fulfilled.
The effect on jobs would feel more like a slope than a cliff.
“Those are not going to be affected immediately by the fiscal cliff. The effect as far as the state economy is concerned is going to be on things that are supported by private spending. So, private parties rather than government contractors are going to be the first affected.”
And while we’re still trying to quantify that impact, Friedman and Jorgenson agree, it would be bad.
“Everybody’s taxes go up and spending that affects Massachusetts industries goes down,” Friedman said.
“There’s no doubt this would lead to an economic downturn that would be very pervasive, probably affect the Commonwealth, so we can expect to be back in a bit of a slump,” Jorgenson said.
Lawmakers have 35 days to figure it out.
CBSBoston.com will have an expert on call for a live Q&A Monday through Friday from 5:30 – 6:30 p.m. to answer your questions about the fiscal cliff.
The series “Inside the Fiscal Cliff” airs all week at 5 and 11 p.m. on WBZ-TV and at 5:55 a.m., 8:55 a.m., 12:21 p.m., and 4:55 p.m. on WBZ NewsRadio 1030.