If you cut government spending, it helps the economy, right?
That's what Republicans keep telling us, but it's hard to see how this can possibly be true. The economy is spending. Government spending is demand. Reduce demand and boost the economy? It makes no sense.
And now we have a real world example of how cutting government spending, as Republicans argue, builds a gangbusters economy. As always, reality has a liberal bias.
Conservative Republicans have long clamored for government downsizing. They're starting to get it -- by default.
Crippled by plunging tax revenues, state and local governments have shed over a half million jobs since the recession began in December 2007. And, after adding jobs early in the downturn, the federal government is now cutting them as well.
States cut 49,000 jobs over the past year and localities 210,000, according to an analysis of Labor Department statistics. There are 30,000 fewer federal workers now than a year ago -- including 5,300 Postal Service jobs canceled last month.
Cut spending, add to unemployment. "The public sector didn't start to lose jobs right away," says economist Heidi Shierholz of the Economic Policy Institute. "But then it did as the budget crunch really hit. State governments are not allowed to run deficits. So the private sector is expanding while the public sector is shedding jobs -- to the tune of 35,000 jobs a month."
So, as a consequence of reduced spending and congress's (read "Republicans'") failure to extend aid to the states, employment is treading water -- as the private sector hires, the public sector fires. And the result is a counterproductive feedback loop keeping job growth stagnant. Republicans often argue that public spending "crowds out" private investment, but even if this were true, it again suggests a feedback loop without growth -- cut government spending and private spending fills the void, but there's zero growth in overall spending. After all, X-X+X=X or stasis. This is a no-growth policy that accepts the current status quo as the absolute best America is capable of.
Republicans really have no plan to stimulate job growth or the economy. And why should they? The fashionable belief among the GOP deepthinkers -- especially among presidential candidates -- is that government doesn't create jobs. Logically speaking, this is the same as saying, "There's nothing we can do."
So it follows that the alternative jobs plan put out by a party that believes it can't possibly create jobs would be a joke. Macroeconomic Advisers, LLC took a look at the GOP's jobs plan and concluded that not only do nothing to help the economy, but the Balanced Budget Amendment provision they jammed in there would do a lot to hurt it.
"Without more detail on the Republican plan, we cannot offer a firm estimate of its economic impact in either the short or long run," they concluded. "However, if what we do know of JTGA [the GOP's "Jobs through Growth Act"] were enacted now, we would not materially change our forecasts for either economic growth or employment through 2013."
"If actually enforced in fiscal year (FY) 2012, a [Balanced Budget Amendment] would quickly destroy millions of jobs while creating enormous economic and social upheaval," they continued. "However, we believe no responsible policymaker would push the implementation of a BBA when the projected federal deficit is $1 trillion and the Fed is unable to offset much fiscal drag... A BBA would amplify cyclical swings in the economy. Furthermore, it likely would be abandoned or circumvented with the first recession after ratification, creating confusion and uncertainty over fiscal policy."
So the Republicans' "Jobs through Growth Act" should more honestly be titled the "Unemployment through Contraction Act." It's just a wishlist of items beloved by Republican dreamers over the years, with no real focus on job creation or economic growth. And why should they put forward a serious jobs plan? We've already established that they believe they can't create jobs and, of course, the thing doesn't have a hope in hell of ever becoming law anyway.
I guess the moral of this story is don't listen to the job creation advice of people who tell you they can't create jobs. Reducing spending is hurting our economy before our eyes and forecasters say that Republicans plans will only make everything much, much worse.
The Republican Party has been telling us over and over that they can't create jobs and the evidence suggests that they're absolutely right.