The Bigger Picture
Published on April 15th 2011 in Metro Éireann By Charles Laffiteau
As I mentioned in previous columns, the Republican Party seems to be enamored of the German austerity diet as a cure for America’s budget obesity. So today I want to explore some more prudent methods than the German austerity diet or starting another world war that economists believe will trim America’s bloated budget deficit without hurting its economy.
Led by an incoming class of 87 new members, most of who campaigned on a promise to their Tea Party supporters that they would cut federal spending, House Republicans continue to claim that their proposed budget cuts will actually help the economy. They also argue that the Obama and Bush administrations’ economic stimulus measures and bank bailouts didn’t work because the US unemployment rate soared to almost ten percent, well above the eight percent mark these measures were supposed to cap unemployment at.
The problem with these Republican arguments is that virtually no economists agree with them. An independent analysis of the Republican spending cuts conducted by Moody’s Analytics chief economist Mark Zandi, who was also an economic advisor to Republican Presidential candidate John McCain in the 2008 election campaign, predicts that they will reduce America’s economic growth by .5% this year and .2% next year. Another analysis by economists at Wall Street’s Goldman Sachs forecasts that the effect will be even worse, reducing US economic growth by 2% and producing 700,000 fewer jobs this year.
Furthermore, economists around the country almost universally agree that America’s economic recession would have been far worse and the unemployment rate much higher had it not been for the government’s bank bailouts and other economic stimulus measures.
But Republicans dismiss these reports as well as the analysis of the effects of their spending cuts on early education programs like Head Start and Pell Grants for students pursuing university degrees provided by economists at the non-partisan Congressional Budget Office. Not surprisingly however, Republicans have also failed to come up with any independent economic analysis of their budget proposals that supports their claims that these spending cuts will help the economy and spur the creation of jobs in the private sector.
Republicans in Congress, as well as the slew of potential Republican presidential candidates currently trying to drum up support for their 2012 political campaigns, also bash Obama for the growth of jobs in the federal government and the public sector as a whole. They contend that 200,000 people have been added to the reducing federal payroll since Obama became President and that cutting these jobs will bring down unemployment by fostering the creation of more private sector jobs.
But these claims don’t jive with the facts. Since President Obama took office in January 2009, the federal government has actually only added 58, 000 jobs and most of these were jobs in Homeland Security and Defence, two departments that Republicans don’t want to cut back. Furthermore, during those same two years more than 400,000 public sector jobs have been cut by state and local governments, raising unemployment by .35%.
As an economic conservative I am acutely aware of the long term consequences of failing to rein in America’s ballooning federal budget deficit. A full economic recovery in America will not come close to accomplishing this task, which will still require a painful combination of both tax increases and spending cuts.
But given the still fragile state of America’s economic recovery, I believe the Republican Party’s proposals to cut federal spending immediately will be just as counterproductive as President Roosevelt’s austerity measures were back in 1937, and Germany and the UK’s austerity measures are today.
Though less emotionally satisfying, the more prudent economic course of action than an austerity diet is to wait until the economy is creating enough jobs to bring down unemployment before implementing the combination of tax increases and spending cuts required to bring our budget deficit under control. Now isn’t the time to cut spending.