The sequester is starting to show its negative effects on the economy - not just shortened hours resulting in loss of pay, but looming job cuts.
Contributing to the hangover from the worst financial crisis in decades is a wave of cuts in domestic and military spending, known collectively as the sequester, which is causing government furloughs as well as job losses and curtailed hours among federal contractors.
Although the sequester became law on March 1, some of the effects, like the forced leaves, have begun to ramp up only recently. More job losses, rather than shorter workweeks, are predicted if the cuts remain in place into next year.
And not only is Congress not doing anything about it as they leave for their one-month vacation at home from their vacations in Washington, they fully intend to harm the economy even more when they get back, with threats of a government shutdown, which even 'mainstream' Republicans
oppose.
Congress left on Friday for a summer recess of more than a month, after a week in which Republicans’ divisions with one another and with President Obama suggested a new budget showdown may be coming in the fall. The disagreements leave no clear way to end the spending cuts that continue to slow the economy and could even lead to a more damaging government shutdown in October.
Corporate and academic economists say that Washington’s fiscal fights have produced budget policies that amount to a self-inflicted drag on the economy’s recovery.
Of course, Congress can manage to get something done, and quick, when they have a personal stake. They flew home with no sequestery delays at the airport, and managed to get themselves out of having to join the Obamacare insurance exchanges required by the ACA. Because there's nothing more horrifying than a member of Congress having to contribute a few thousand dollars to their healthcare - they get to stay on the Government teat they claim to hate so much.
But regular people affected by the dragging economy? Not so much. (They can pin their reelection hopes on their 40th vote attempting to repeal Obamacare and other monkey wrenches they've thrown into the works).
Joseph J. Minarik, director of research at the corporate-supported Committee for Economic Development and a former government economist, said he could not remember in postwar times when fiscal policy was so at odds with the needs of the economy.
“The macroeconomic situation is highly unusual,” he said, adding: “We have to be concerned about our debt getting totally out of hand, so we are concerned about the federal budget. But the concern has got to be tempered by the fact that we have got to get some economic growth going as well.”
“The disjunction between textbook economics and the choices being made in Washington is larger than any I’ve seen in my lifetime,” said Justin Wolfers, an economics professor at the Gerald R. Ford School of Public Policy at the University of Michigan. “At a time of mass unemployment, it’s clear, the economics textbooks tell us, that this is not the right time for fiscal retrenchment.”
Given that rough consensus in an otherwise quarrelsome profession, he added, “To watch it be ignored like this is exasperating, horrifying, disheartening.”
Even corporate America is not happy about it.
“Over all, fiscal drag has likely reduced growth this year at least 1.5 percentage points, and isn’t over yet,” Bank of America Merrill Lynch wrote to clients on Friday. “The last thing the economy needs is a repeat performance. A key part of our optimistic forecast for next year is that there is not a sustained shutdown this fall; the latest bickering leaves us a little more concerned.”
The uncertainty itself is causing some businesses to hold back on hiring or investing.
This historic 'incompetence' is of course going exactly according to Republicans' plans, where not only did they achieve reducing the size of the government work force, but inflicting pain on the 'Democrat' economy as well.
President Obama's proposal to lower the corporate tax rate while closing loopholes to generate revenue that would be injected into infrastructure spending, creating jobs, was rejected out of hand by Republicans and John Boehner before it was even proposed, knowing that it harbored the possibility of positive benefits for the economy. They trotted out the old zombie lie that lowering the corporate tax rate would harm small business, which was debunked over and over again during the past election.
It's good to hear President Obama finally bringing middle class needs into the conversation. But it's going to take a lot more than words to get something done with the obstructionism in Congress. And naming Larry Summers to be Fed Chairman is not it. Larry has a lot of supporters in certain circles, and it's not the 99%.
“You can’t find a member of the economic team who is for anyone but Larry,” said a person close to the administration who declined to talk on the record before Mr. Obama makes his decision. “That’s true at Treasury, that’s true at the White House. The reason is, Larry has been through this. Larry brings the right skills to bear here.”
But many officials who enjoyed working with Mr. Summers remain in prominent positions within the White House. Those include Gene Sperling, the current head of the National Economic Council, the position Mr. Summers occupied for the first years of the Obama administration; Brian Deese, deputy director of the budget office; and Jason Furman, who won Senate confirmation on Thursday to become chairman of the Council of Economic Advisers.
Of course people who have personally benefited from his policies would endorse him. But continuing these bank friendly policies is not the way to restore the middle class. Unfortunately it sounds like 'Larry' already has one foot inside the Fed office door.