The Republicans are actively pursuing their “Starve the Beast” strategy for a smaller federal government which involves simply not funding or severely cutting appropriations of money (whenever possible) for legislatively authorized federal programs that they don’t like and don’t want to support (is this the tyranny of the majority?). This of course includes almost all social spending programs that Democrats tend to support, programs like Medicare and Medicaid, Social Security and others. Back in 2011—after President Obama failed to reach a budget agreement in his “Grand Bargain” with Republicans Boehner and Cantor in the House— the Budget Control Act was passed in the Congress which ultimately led to the sequester which put so-called across-the-board “caps” on almost all government spending programs—supposedly including defense spending. This has made the Tea Party nut-cases on the conservative right happy, but it ultimately hurts everyone else—the sick and the elderly, people who depend on Medicare and Medicaid and Social Security, not to mention just average working people in the general economy who are struggling and maybe having trouble finding a job. The forced sequester capped federal spending ( a big part of aggregate demand) just at a time when the economy actually needed more stimulus, more government spending. This was exactly the wrong policy at the wrong time.
This austerity has, of course, helped reduce the budget deficit; but it’s left many government offices and programs severely underfunded. But it’s also caused a serious reduction in over-all aggregate demand in the economy at a time ( post the 2008 – 2009 financial crisis) when we’ve been trying to rebuild growth and employment and stimulate the economy. The Fed has maintained its own program of QE (Quantitative Easing) and a regime of unnaturally low interest rates now for almost six years, all to ward off the contractionary forces of deflation. This is kind of like driving with one foot on the gas and the other on the brake, and the economy has responded in just the schizophrenic way you would expect. The forced austerity measures, and the resultant slow economic growth, have together been an enormous drag on the economy. But an accommodative monetary policy by the Fed can’t by itself fix the problem. What’s needed is more aggregate demand (public and private) — but mostly from the private sector, and that only comes from increased spending by consumers, and that only happens when more people are working and have good paying jobs.
In 2013 the sequester mandated 85 billion in cuts to government spending. It’s estimated that this took one full percentage point off GDP. In 2014 employment was reduced, due to the sequester, by 1.5 miilion jobs in the private sector, and more than another 300,000 jobs in the public sector, almost two million jobs overall. When you reduce overall employment in the economy—guess what? You reduce consumer demand. As a result of the austerity forced by the sequester — and the consequent cut-back in demand — the recovery the last five years has been the most halting and anemic of all post-war recoveries, averaging between just 1 – 2 % per year. In the last quarter, (1st quarter 2015) growth was a dismal – 0.7 %. That’s right, a minus 0.7 %. This is not sufficient growth to produce enough jobs — due to population growth — to employ even the new entrants coming into the job market. Unemployment, of course, has come down from the highs posted in the immediate aftermath of the financial collapse; but a lot of the job growth was in low-paying, semi-skilled jobs. In fact, wage growth for 90% of U.S. workers has been essentially flat in the last five years with all the wealth created in the economy going again (surprise?) to the top 1%, further exacerbating the income inequality in the economy. Just remember, if you want to do well, then you want to see your neighbor do well, no matter your differences in politics or ideology.
The result, and this should come as no surprise, many average working Americans today are under-employed in part-time low paying jobs and have too little money to spend. And with the government cutting back and eliminating workers due to the austerity imposed by the sequester, there just hasn’t been the kind of strong aggregate demand in the economy that encourages corporations to build new plant and equipment, that gives them the confidence to hire new workers and increase wages. This, afterall, is what laissez-faire capitalism is suppose to be about. Yet, it’s the breakdown and dysfunction of the capitalists model, and the Republican’s total commitment to an out-dated and out-moded ideal that hamstrings this economy. There is no such thing today in the U.S. economy as the free-market, not at least in the way Adam Smith perceived it. The Republican answer to a slow economy, however, is always the same, like a recurring echo down a long canyon — just cut taxes for the wealthy and provide more subsidies and tax breaks for “Big Oil” and corporations like GE, which already pays zero in income tax. Just more of the same “trickle-down economics” and Republican “old time religion”. Intellectually, I can think of nothing more fraudulent or more hypocritical.
During the last two months of George Bush’s term in office, the economy lost one and a half million jobs. During the first quarter in 2009 (when Obama came into office) the economy continued hemorrhaging jobs, and GDP growth was a negative 8 ½ – 9 %. An emergency stimulus package was put in place to stop the hemorrhage, but it was woefully inadequate both in terms of size and impact on the economy. Recovery was painfully slow and the economy remained sluggish. Then came the sequester.
One of the big unintended consequences (for Republicans anyway) of the broad, across-the-board government spending caps has been the forced reductions in military spending. The military, of course, is a sacred cow for them and they never want to cut the defense budget. This year, when it became apparent that the caps would reduce spending (cut the budgets) of a couple of the defense hawk’s favorite programs, the Republicans pushed through the recently passed the National Defense Authorization Act. Included in the bill was a provision for the Overseas Contingency Operations Fund or OCO as it’s called. This is an off-budget item that’s only supposed to be used in emergency situations. But it ended up being used as a supplemental to the basic defense authorization as a way of getting around the spending caps being imposed on the Pentagon by the budget sequester. In other words, the spending caps imposed by the sequester that were intended to be “across-the-board”, now apply to all federal spending —except for defense.
One of the defense authorizations impacted by the cuts was a Navy program for a new class of nuclear submarine. The other was a continuing authorization to fund the completion of the Air Force’s long delayed and over-budget F-35 fighter-bomber, a program that by the time it’s completed will be at least ten years behind schedule and 167 billion dollars over the original budget amount of 391 billion dollars, making it the costliest program in Pentagon history. It’s projected that the planes won’t be fully operational for maybe another ten years. By then the state-of-the-art computer technology that makes these planes cost an eye-popping 160 million dollars apiece to build will, no doubt, be obsolete. By then, Republicans will, no doubt, want a “new generation” bomber to replace out-dated F-35. This never ends.
What’s even more astounding, the Pentagon claims not to even want the plane. But the defense Hawks in the Congress — and their defense establishment lobbyists and partners—are all determined to fund and complete the program no matter the final cost. Characterizing the program as “too-big-to-fail” (where have we heard that before?), the Republicans have already earmarked an additional 39 billion dollars above the defense cap, putting the money into the OCO for this year as a way of getting around the Pentagon’s spending cap so the programs can go ahead. When it all gets tallied up, with the over-run cost of the program, and the additional costs of operating and maintaining the F-35 over its projected life span, the program could go over a trillion dollars—this is for just one airplane! Talk about fiscal and budgetary hypocrisy!
Just think all the good paying jobs that could have been created had we instead spent that money to repair the country’s crumbling roads and bridges, used it to make needed investments in education and research to keep us competitive, and secure our future, in an increasingly challenging and competitive global economy.
The Republicans though are firm in their position, there will be no tax increases (particularly on the wealthy, their primary constituency), no defense cuts, but considerable reductions (cuts) in domestic spending (Medicare, Medicaid and Social Security). Their war hawk friends in the defense establishment, however, will celebrate Christmas with turkey and all the trimmings. And the Air Force and Navy will get their war toys and increased defense authorizations, new air craft carriers and expensive fighter bombers under the tree all wrapped up with big Republican bows and ribbons. The rest of us will get served up an empty plate (too bad Tiny Tim) and coal in our stockings.
Merry Christmas everybody!
The Money Trader