Nothing focuses the mind, Oscar Wilde famously said, like the sight of the gallows. And so it is with Republican Governors on the brink of losing $6 billion in federal aid thanks to automatic budget cuts currently set to kick in on March 1. But it shouldn't have taken the specter of the sequester's body blow to the U.S. economy (which the CBO forecast at 750,000 lost jobs and 0.6 points of GDP growth sacrificed in 2013 alone) for the likes of Bob McDonnell (R-VA) and Jan Brewer (R-AZ) to lament the "devastating" impact of the budget cuts. After all, since the start of the great recession the unprecedented contraction of American government at all levels has hammered economic growth and likely already added a full point to the unemployment rate.
In his New York Times article Wednesday ("Austerity Kills Government Jobs as Cuts to Budgets Loom"), Binyamin Applebaum emphasized precisely that point:
The federal government, the nation's largest consumer and investor, is cutting back at a pace exceeded in the last half-century only by the military demobilizations after the Vietnam War and the cold war...
Combined with cuts by state and local governments, the drop in government's contribution to economic growth is the largest in more than 50 years.
With mandatory spending programs including Medicare, Social Security and interest on the national debt off the table, recent cuts discretionary programs are gutting federal investment and consumption (see chart above). If the $1.2 trillion, ten-year sequester proceeds, Applebaum warned, "those cuts would join an earlier round of deficit reduction measures passed in 2011 and the wind-down of wars in Iraq and Afghanistan that already have reduced the federal government's contribution to the nation's gross domestic product by almost 7 percent in the last two years." Alec Phillips, an economist at Goldman Sachs, forecast that federal consumption could fall by another 11 percent over the next two years.
It doesn't have to be this way. As Jared Bernstein explained after last quarter's disappointing GDP report:
The role of diminished government spending--austerity at time when we need a fiscal push--is a useful reminder that it's not nature that has us stuck in this slog, it's policy.Very bad policy, that is.
All told, the public sector at all levels of government has shed over 600,000 employees since mid-2009. (The figure was 89,000 over the last three months of 2012, representing one government job for five gained in the private sector.) The triple whammy of declining state and local tax revenues (which only returned to 2008 levels last year), draconian budget cuts and the drying up of federal stimulus funds have led to a record decline in government jobs. (While the number of federal employees has grown slightly over the past four years, as a percentage of the U.S. population Uncle Sam's workforce is at its lowest level since the 1950's. Nevertheless, Republicans including John McCain have called for slashing it by an additional 10 percent.)
In April, the Economic Policy Institute (EPI) showed how bad with the chart above. Noting that the private sector had gained 2.8 million jobs while federal, state and local governments shed 584,000 just since June 2009, EPI concluded that the public sector job losses constituted "an unprecedented drag on the recovery":
The current recovery is the only one that has seen public-sector losses over its first 31 months...As the New York Times Floyd Norris explained in "the Incredible Shrinking U.S. Government."
If public-sector employment had grown since June 2009 by the average amount it grew in the three previous recoveries (2.8 percent) instead of shrinking by 2.5 percent, there would be 1.2 million more public-sector jobs in the U.S. economy today. In addition, these extra public-sector jobs would have helped preserve about 500,000 private-sector jobs.
For the first time in 40 years, the government sector of the American economy has shrunk during the first three years of a presidential administration.
Spending by the federal government, adjusted for inflation, has risen at a slow rate under President Obama. But that increase has been more than offset by a fall in spending by state and local governments, which have been squeezed by weak tax receipts.
In the first quarter of this year, the real gross domestic product for the government -- including state and local governments as well as federal -- was 2 percent lower than it was three years earlier, when Barack Obama took office in early 2009.
All told, the unemployment rate without the hemorrhaging of public sector jobs could be a full point lower. "We're talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates," Paul Krugman lamented in March, "1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs."
Yet when President Obama rolled out his $447 billion American Jobs Act including new assistance to state and local governments in the fall of 2011, Republicans made it clear why they opposed a bill former McCain economic adviser Mark Zandi forecast that could create up to 1.9 million jobs and add two points to U.S. GDP:
"Obama is on the ropes; why do we appear ready to hand him a win?"In response to the GOP filibuster, a frustrated Obama could only ask:
"Are they against putting teachers and police officers and firefighters back on the job? Are they against hiring construction workers to rebuild our roads and bridges and schools?"In a word, yes. Or at least they were then.
While Republicans in Congress seem increasingly committed to the sequester now less than 48 hours away, GOP governors are beginning to squeal. As Pew Research revealed (above), the impact of the sequester will hit some states harder than others. Many of them, like Virginia, are governed by Republicans. That's why its Governor Bob McConnell is pleading with Washington to find a way out its self-imposed sequester. As the Washington Post's Greg Sargent noted:
Some seem to be edging up ever so gingerly to the idea. They don't say so in those terms, but many of them are urging all parties to come to the table to make a deal. Virginia Governor Bob McDonnell is urging lawmakers to figure out a way to avert the sequester, but as Politico notes, he no longer appears to be willing to blame only Obama for the current standoff.As for the public, new polling shows little doubt as to who Americans will blame for unnecessary austerity that could put the U.S. economic recovery at risk.