The GDP dropped because government spending dropped: your move, GOP

Economic growth for the Q4 GDP was down -0.1%. Why? Because government spending dropped. Steve Benen explains:

So why did we see slight contraction in the GDP? In large part because spending cuts — federal, state, and local — shaved more than a full percentage point off GDP growth. I realize the right doesn’t want to hear or believe this, but when Washington spends far less — in this case, the cuts focused on defense — it takes capital out of the economy and undermines growth. It is, as a practical matter, a form of austerity, which helps hit the brakes on the economy. This is Economics 101 and yet Republicans continue to insist that it is the only policy they really care about. It’s something to keep in mind as the Beltway’s preoccupation with debt reduction, not the recovery, continues unabated. It’s also a reminder that the automatic sequestration cuts may very well push the nation closer to a recession this year.

Jonathan Chait says there’s good news: “…the contraction is sort of a fluke — consumers and businesses are spending away, and a decline in government spending is entirely accountable for the contraction. (Defense spending dropped 22 percent over the quarter.)” But here’s the bad news:

“The budget “sequestration” will lop more than a trillion dollars of spending cuts out of the economy, creating similar effects as we saw this last quarter. The Obama administration had hoped the threat of these cuts, half of which come out of defense, would force Republicans to compromise on some kind of long-term deal that would eliminate all the short-term austerity and replace it with gradual, long-term deficit reduction. But that seems unlikely to happen. Obama wants the long-term plan to include a mix of higher revenue through tax reform with cuts to Medicare and Social Security. Republicans insist the deal must consist entirely of cuts to social programs, and any higher revenue is unacceptable. The GOP’s stated plan is to just implement the sequestration cuts.”

Brian Beutler notices a Democratic strategy is emerging, which involves chipping away at the sequester (and the deep cuts to social programs) with popular cuts to raise revenue, such as oil company subsidies:

Reid tipped his hand to his party’s subtler strategy. “There are many low-hanging pieces of fruit out there that Republicans have said they agreed on previously,” Reid added. “I’m not going to go into detail, but one of them, of course, is deal with oil companies.” That’s a tip of the hand. As the sequestration deadline approaches at the end of next month, Republicans will be be stuck with an absolutist line. Letting the sequester hit would be better than replacing it with even a penny of revenue; and their offer, from the last Congress, is to replace the entire sequester largely with deep cuts to social programs for the poor. Democrats will have a counteroffer. Perhaps the parties can’t agree on a complete sequester replacement. But they can pay it down for a few months with popular cuts and revenue raisers, including by eliminating tax subsidies for oil companies.

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Meanwhile, rabid Fox ‘news’ viewers will continue to imagine members of the Republican Party are on their side because… guns? No gays? No abortion?


image: DailyKos

It’s Republicans, not Democrats, who would love to drown our Medicare in a bathtub (and Social Security and any other social or safety net program you can think of). Why? So wealthy people like the Romneys can write off $77,000 for dancing horses and so the GOP can funnel more of our tax dollars via subsidies and tax cuts to their buddies in defense and oil.

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3 thoughts on “The GDP dropped because government spending dropped: your move, GOP

  1. Pingback: The GOP has been successful at cutting deficits to obstruct economic recovery | Under the Mountain Bunker

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