Today’s unemployment report shows America still has a weak economy as it moves towards growth killing austerity cuts by Congress. In January the private sector expanded by 166,000 jobs with government shedding 9,000 jobs for a net gain of 157,000. The official unemployment rate rose to 7.9 percent. Factoring in the loss of middle class wealth during the crisis and the slow growth rate the beleaguered lower classes of American society will be flirting with poverty for the foreseeable future. And that’s without the austerity cuts.
If the planned cuts to Social Security, Medicare, and other social programs go through not only will those in need greatly suffer but the economy as a whole will be damaged.
Mark Zandi of Moody’s Analytics projects the sequester alone will cut 0.5 percentage points off growth in 2013 if it’s allowed to go into effect. Add that to the expiration of the payroll tax cut and assorted other belt-tightening measures at the federal level and total fiscal drag, he says, is likely to be more than one percentage point of GDP in 2013 — a significant hit when total GDP growth isn’t expected to be above three percentage points…
So yes, the government is hurting the recovery. But it’s not because of deficits or uncertainty, or at least, it’s hard to find evidence for either theory. The real, provable damage the government has done to economic growth in recent years has been in cutting back on spending and investment since 2010.
To paraphrase Talleyrand, austerity cuts would be worse than an immoral act they would be a mistake. The consequence would not only be more pain and misery for the middle and lower classes but a slow down in growth guaranteeing that pain and misery would be sustained and perhaps ultimately channeled into action against the elites and their operatives who forced the cuts. Those demanding austerity have yet to explain the endgame they envision because the one materializing is disastrous.
Photo by National Archives and Records Administration under Public Domain