A terrible thing happened on the road to recovery. Last quarter: the economy shrank. Some are “surprised” that the U.S. economy actually contracted .1% in the 4th quarter of 2012. Many of us are not. Republican spin doctors are out with their talking points blaming Obama, but many economists blame the political brinkmanship and austerity programs of Congress for the problem.
The commerce Department issued its initial report the day after the Dow hit its highest point since 2007 and the ADP report indicated 192,000 private sector jobs were created in January. Experts predicted only 175,000 jobs would be added, but we must wait for the “official” report to be issued by the Bureau of Labor Statistics to be certain.However jobless claims hit 5-year low and housing a 5-year high.
That activity, however, occurred in the 1st quarter of 2103 after a “deal” was signed into law postponing the fiscal cliff. Economists think that the uncertainty over the cliff shocked the economy into retraction in December.
Certainly the climate-change induced drought and super-storm Sandy were culprits. Sandy closed businesses; workers were laid off, and money that would have been spent on things like holiday shopping was not spent. The lingering drought over 67% of the nation has crippled the economies of hundreds of counties.
These disasters that wreaked such damage over so much of the nation is bound to cause a jolt especially when Republicans in Congress held the Sandy relief bill up for 70 days not passing it until the 1st quarter of 2013, and they have still not passed the Farm Bill with drought relief. This is unprecedented negligence.
Congress in general and Tea Party Republicans in particular, deserve much of the blame. Some of it is bad policy; much of it is due to ugly, self-serving political games being played at the expense of the American people.
An article in the National Memo reports that many financial experts are saying that political brinkmanship over the fiscal cliff, threats of a government shutdown, and government austerity programs played a key role in the contraction.
Congress forced the federal government and in turn state and local governments to cut back spending and jobs. This sudden austerity affected our economy like the austerity programs in Europe sent their economies into recession. President Obama and Democrats warned Republicans this would happen but they did not listen.
Shobhana Chandra & Michelle Jamrisko of Bloomberg said:
“A decline in government outlays and smaller gain in stockpiles subtracted a combined 2.6 percentage points from growth. In particular, Defense spending erased any growth that the private sector racked up in the last three months of the year. Government outlays dropped at a 6.6 percent annual pace from October through December, subtracting 1.3 percentage points from GDP. The decrease was led by a 22.2 percent fall in defense that was the biggest since 1972, following the Vietnam War.”
Daniel Gross of the Daily Beast wrote:
“Austerity, it turns out, detracts from growth… But the real culprit this time was the federal government. We’ve noted this time and again, but it bears repeating. We are having a conservative recovery. Federal government spending may be up, on health care, entitlements, and benefits. But pretty much everywhere else in the vast government sector, spending is down – especially on employment. Since May 2010, some 1.072 million public-sector jobs have been cut.”
Heidi Moore wrote in the Guardian:
“Washington’s inane fight over the fiscal cliff late last year wasn’t just harmless talk. It created actual damage. We now have what looks like proof that Washington’s petty attempt to take the US economic system hostage in the “fiscal cliff” fight actually did hurt the economy by causing businesses to cut back and brace themselves for impending disaster… Worse yet, it was not a gradual reversal. This was a sudden and vicious chop… So, what happened? Washington’s idiotic battle over the fiscal cliff is what.”
Will this be a wake up call for Congress that their slash and burn tactics are not working and are plain wrong? It is doubtful. Tea Party Republicans could care less. They are focused on cutting the government down to a size that it “can be drowned in a bath tub,” as Grover Norquist said. To Tea party Republicans a .1% retraction is progress.
Let’s hope more patriotic voices prevail.
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