Cutting Spending In this Disastrous Recession Is Just Another Way of Assaulting Working America
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The Great Recession officially ended in June 2009. However, millions across the country are still feeling the pain of a labor market that hasn’t yet recovered. Despite this, calls for budget cuts and austerity threaten to slow or reverse any growth in employment. In fact, recent reports from both Goldman Sachs and Moody’s Financial suggest that enacting the GOP cuts could cost the nation 700,000 jobs over the next few years. And while the Great Recession was sometimes referred to as a "man-cession," with much of the losses felt by men, this time, the pain will fall disproportionately on women.
Since the Great Recession was formally declared over in June 2009, the economy has experienced only two quarters of above-trend growth in real GDP – growing at an annual rate of 5.0 percent in the fourth quarter of 2009 and 3.7 percent in the first quarter of 2010. For the rest of 2010, real GDP growth was disappointing – a point driven home in the recent downward revision of fourth-quarter GDP growth from 3.2 to 2.8 percent. CBO projects output growth at 3.1 percent in 2011. At this rate, employment--which in January 2010 was still below its December 2007 level by more than 7.7 million jobs-- will add just 2 million jobs. That’s a scant 1 million more jobs than are needed to keep up with the growth of the working-age population, and will reduce unemployment by just half a percent this year.
The economic problem is clearly one of lack of demand. The pain experienced by workers as a result of the slow growth in real GDP is palpable. Yet, there is no leadership in Washington and no grassroots political pressure to renew, let alone expand, government stimulus measures. Quite the contrary: fiscal policy in 2011 and 2012 looks set to embrace spending cuts that will reduce the rate of real GDP growth below CBO’s forecasts, rates of growth already too low to make much of a dent in the unemployment rate..
The deal struck by the president and Congress at the end of 2010 – the extension of tax breaks, including for the wealthiest Americans, and unemployment insurance benefits for the long-term unemployed – was intended to offset the effects of the winding down of the 2009 fiscal stimulus measures. Spending cuts at the state and local levels are already undermining the effect of the tax deal on growth and job creation. The further cuts demanded by Republicans in Congress and the attacks by governors on state and municipal workers are unconscionable.
Goldman Sachs economist Alec Phillips estimates that the spending cuts in the bill passed by the House will result in a drag on GDP growth of 1.5 to 2 percentage points in the second and third quarters of this year compared with current law. The House has not yet considered the FY 2012 budget, so Phillips doesn’t examine 2012 effects. That would reduce real GDP growth to about half the 3.1 percent growth rate projected by CBO. Moody’s Mark Zandi estimates that the spending cuts proposed by House Republicans would reduce GDP growth in 2011 and 2012, and would mean 400,000 fewer jobs created this year and 700,000 fewer by the end of 2012.
Where the negotiations between the House and Senate on the FY 2011 and FY2012 spending bills will end up is anybody’s guess. Both Zandi and Phillips are confident that a deal will be struck, but even more “modest spending cuts,” as Phillips describes them, would shave 1 percentage point off of growth in the middle of this year. He expects the rate of real GDP growth to recover by the end of 2011, but that projection was made in the absence of consideration of Republican spending cut proposals for 2012. Both analysts view this emphasis on immediate cuts in spending as less than ideal as economic policy, but both believe, as Zandi put it, that “the economy will be able to manage through it.”