Have you heard that the Republican-imposed budget austerity is responsible for the continuing economic malaise? All of those budget cuts imposed as part of the FY2011 compromise has supposedly damaged the economic recovery that was just around the corner, or something. Reuters reported on this claim last week:
Obama’s re-election chances next year may hinge on whether he can convince voters he is helping the U.S. economy dig out from the worst recession since the 1930s with unemployment stuck above 9 percent since May.
Democrats also face tough odds as they try to hold on to their Senate majority and win back the House of Representatives from Republicans.
Democrats have spent much of the year playing defense as Republicans aligned with the conservative Tea Party movement have won record spending cuts in a series of budget battles.
With the recovery stalling, Democrats have shifted the focus from austerity back to stimulus, where they believe they hold a winning hand.
Sounds like a great strategy. In fact, it only has one real flaw … it’s just not true. Investors Business Daily’s John Merline points out an inconvenient truth, which is that federal spending is rising, not falling — and faster than the rate of inflation:
In fact, in the first nine months of this year, federal spending was $120 billion higher than in the same period in 2010, the data show. That’s an increase of almost 5%. And deficits during this time were $23.5 billion higher.
These spending hikes haven’t stopped many analysts from claiming that the country is in an age of budget austerity, one that’s hurting economic growth.
A July article in USA Today, for example, claimed that “Already in 2011, softer government spending has sapped growth.”
Jared Bernstein, former chief economic adviser to Vice President Biden, wrote over the summer that “government spending cutbacks have been a large drag on growth in recent quarters and have led to sharp losses in state and local employment.”
Economist and New York Times columnist Paul Krugman argued in September that “the turn toward austerity (is) a major factor in our growth slowdown.”
It’s even less true of state governments. While the media focuses on potential and actual staff reductions at that level, the data actually shows that 2010 state spending increased by almost 10% over the last two years, once federal grants got counted. According to the survey, even states’ general-fund spending will increase this year by 5.2%.
Here’s a chart showing the actual spending by state governments during the recovery:
Notice that the only category that declined at all was Corrections — prisons and jails. Thanks to the Porkulus bill and other state projects, transportation spending jumped significantly, as did public assistance and Medicaid (a predictable result of economic stress). Higher education got a bigger increase than elementary and secondary education; perhaps someone can explain those priorities the next time Obama talks about elementary-school teachers and his jobs bill. Neither increased as much as the “all other” category.
For all of that transportation spending, did the economy recover and did we embark on massive job creation? No? Then why are Democrats pushing another public-works and state bloc-grants bill as a jobs stimulus? Maybe we should actually try an austerity plan that keeps capital out of the hands of bureaucrats and keep it in the hands of those who actually, you know, create jobs. That would have the novelty of never having been tried, despite what Krugman and Bernstein claim.