When Weepy Speaker John Boehner lamented that the Democrats were "snuffing out the America I grew up in," he was talking about the wrong party. The fact is that the spending cuts the Republicans demand will throw many out of work, and threaten the recovery.
There really is a serious danger that too many cuts too soon will plunge our shakey economy into deadly downward spiral fuelled by falling aggregate demand.
It has been estimated that the $61 billion in cuts Republicans wanted would cost 700,000 jobs. They got $38.5, but now they are in a position to demand much more by using the threat to shut down government and ruining the nation's credit ratingf.
It is likely that the federal spending cuts that will be required to get assent to raising the debt limit will far exceed the $61 billion, so it is not unreasonable to expect far more than 700,000 more unemployed. No one knows how many jobs will be ended as a result of spending cuts at the state level. That total would include the policement, teachers, social workers and others thrown out of work and many others thrown into unemployment because the former public employees will consuume far fewer goods and services.
The Republican goals are redistributing income upward--which they have been doing, getting cheap labor, and slashing the safety net so far that there will be no need to raise taxes toi sustain it. Their mantra is that cutting spending will create jobs.
If one were to study the so-called "economics" behind the Republican claim that spending cuts will produce jobs, one would find no hard data. A Republican-gernerated report for the Joint Economic Committee points to the benefit of firing government workers. This action will help growth because it “increases the available supply of educated, skilled workers for private firms, thus lowering labor costs.” In other words, the fired government workers will have to settle for lower wages, and that will create pressure to further drive down wage levels. In Florida, advocates of firing teachers and public workers were more explicit, showing how enlarging the labor pool will lower wages and make America more competitive.
The little data that was produced last year to prove that spending cuts generated new jobs has been thoroughly repudiated. Even the International Monetary Fund managers thought it important to shoot down these silly economic theories. Their report stated, “The idea that fiscal austerity triggers faster growth in the short term finds little support in the data.” Fed Chairman Ben Bernanke, a Republican, testified that “the cost to the recovery would outweigh the benefits in terms of fiscal discipline.”
The warned over supply-side theories that Paul A. Ryan and others use are sometimes called the doctrine of “expansionary austerity.” It is based on excessive reliance on monetary theories and idea that there were two golden eras in American Economic history: The Roaring Twenties and the Gilded Age. These were both periods in which the economy was unregulated and workers were held down.
Conservative scholars claim that in those periods annual growth was almost always at 5%. They do not note that some of the panics or depressions were very deep because they were the results of sometimes wild boom-bust cycles. Human suffering in those depressions was intense, and labor was often controlled by state militias acting as anti- strike police.
Much of the extraordinary growth in many of those years was not the result of lack of regulation. Rather, such a small portion of our GDP was invested in defense that a much greater portion of national income could be invested in industrial growth. One dares to say that only afew consevatives would recognize this and suggest that we drastically cut defense and invest that money in rebuilding our economy.
Moreover, the conservatives usually do not admit that the excesses of Twenties led to the Great Depression, the impact of which conservative economists now minimize.
Expansionary Austerity relies excessively on monetary theory and there is a tendency to attribute far too much to shifts the policies of the villain, the Federal Reserve policy. Monetarists have historically taken into account how much spendable wealth is available at a given time, and they recognize that sharp contractions in that amount damage the economy. The policies now advocated by Republicans will sharply contract what can be spent on goods and services and to create jobs. The ideologues supporting the Ryan plan do not address this possibility.
Businessmen in the United Kingdom appear to have known about what contraction does to business. As soon as the Cameron government announced its austerity program, business confidence in a recovers took a sharp dip. Since then, retail sales have plunged, now reaching the lowest point in 15 years. Now British economists are saying that the loss of 300,000 public sector jobs might plung the United Kingdom back into a recession. Forecasters there are cutting estimates of economic growth to about 1%, and some American forecasters are scaling back their estimates of growth here.
One would expect conservative theorists like Ryan to keep a close watch on what their cousins across the Atlantic are doing and what results their policies are producing. But ideology is involved here, so we cannot expect them to be practical and look at empirical evidence.
On the other hand, they may be eminently practical from a political perspective. If they can weaken the recovery or push the nation back into recession, masses of deluded voters will punish Obama and the Democrats for what the crafty Republicans have wrought.