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Mon Feb 4, 2013, 05:53 PM

GOP Delight - Public Sector Austerity Still Slowing U.S. Economy


All along, the real danger of the so-called "fiscal cliff" wasn't that U.S. national debt would increase, but instead that it would drop too quickly. Now, the surprise news that the American economy contracted by 0.1 percent in the last quarter of 2012 is providing a case in point. Along with the impact of super storm Sandy, declining exports and shrinking inventories, steeps cuts in federal (especially defense) spending explain much of the shortfall from the consensus forecast of 1.1 percent growth. As it turns out, since the start of the great recession the unprecedented shrinkage of the U.S. public sector has hampered economic growth and likely added a full point to the unemployment rate.


As Thinkprogress noted Wednesday, "The 0.1 percent contraction is almost entirely attributable to cuts in government spending." The Bureau of Labor Statistics (BLS) explained:

Real federal government consumption expenditures and gross investment decreased 15.0 percent in the fourth quarter, in contrast to an increase of 9.5 percent in the third. National defense decreased 22.2 percent, in contrast to an increase of 12.9 percent. Nondefense increased 1.4 percent, compared with an increase of 3.0 percent. Real state and local government consumption expenditures and gross investment decreased 0.7 percent, in contrast to an increase of 0.3 percent.

That development came just one day after the Bipartisan Policy Center warned that the automatic budget sequester now scheduled to kick in on March 1st could cost the U.S. one million jobs in 2013. As Jared Bernstein lamented Wednesday:

The role of diminished government spending--austerity at time when we need a fiscal push--is a useful reminder that it's not nature that has us stuck in this slog, it's policy.

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All told, the public sector at all levels of government has shed over 600,000 employees since mid-2009. (The figure was 89,000 over the last three months of 2012, representing one government job for five gained in the private sector.) The triple whammy of declining state and local tax revenues (which only returned to 2008 levels last year), draconian budget cuts and the drying up of federal stimulus funds have led to a record decline in government jobs.


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