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Speaker of the House John Boehner (L) listens to House Majority Leader Rep. Eric Cantor (R) discussing the Balanced Budget Amendment, which is scheduled to be considered on the floor of the House next week, at a news conference on Capitol Hill in Washingt
Republican are miscalculating by celebrating the weak economic report.
As you might have already seen, the latest Gross Domestic Product report showed the nation's economy shrunk by 0.1 percent in the fourth quarter of 2012, the worst economic performance since 2009. This is not a good number, so naturally Republicans are thrilled:
The bad GDP news makes it even more unbelievable that Obama has been ignoring job growth in his 2nd term agenda. Priorities are backwards.
@Reince via Twitter for iPhone
But if they take the time to move past the mere fact that growth declined and ask themselves why growth declined, their enthusiasm might ebb. That's because the economic slump was largely caused by a dramatic reduction in federal spending:
The drop was driven by a plunge in military spending, as well as fewer exports and a steep slowdown in the buildup of inventories by businesses. Anxieties about the fiscal impasse in Washington also contributed to the slowdown. [... JP Morgan chief United States Economist Michael] Feroli said there were some hints the economy was performing slightly better than the headline number suggested.

The 22.2 percent drop in military spending – the sharpest quarterly drop in more than four decades – along with the drop in inventories and exports overwhelmed more positive indicators in the private sector, he said. For example, final sales to private domestic purchasers, which strips out government spending as well as trade and inventories, rose by 2.8 percent. “Consumers and businesses kept spending at a pretty steady pace,” Mr. Feroli said.

In fact, for the full year, the economy grew more in 2012 than it did in 2011. But the last quarter of 2012 serves as an example of what happens when the government abruptly slashes spending—and that's exactly what's scheduled starting on March 1 when the sequester starts taking effect.

Republicans have always said that dramatic spending cuts will accelerate economic growth, but last quarter's growth figure once again put the lie to that fiction. It makes it clear that if House Republicans insist on implementing the sequester, they'll be directly responsible for tanking the economy.

Democrats are currently planning a strategy to chip away at the sequester on a piece-by-piece basis. Under their plan, explained in detail here by Brian Beutler, they'll offer up things like ending tax subsidies on oil companies to pay for postponing the implementation of the sequester. It's a pretty good plan, but the key to making it work is to remind the public the reason the economy slipped towards the end of the year is that we cut spending. Fortunately, we still managed positive growth for the year, but it would be the definition of insanity to move forward with more draconian spending cuts in the first quarter of 2013 given what we just saw happen in the last quarter of 2012.

Originally posted to The Jed Report on Wed Jan 30, 2013 at 08:52 AM PST.

Also republished by Daily Kos.


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