We’re seeing the first signs of the Sequester effect on job creation with this month’s jobs report. It isn’t pretty. The modest drop in the unemployment rate to 7.6% isn’t something to celebrate because the bulk of that number is a result of people giving up on looking for work.
The 88,000 jobs that were created (excluding farm related jobs) is the lowest number since last June. According to Paul Dales, who is an economist at Capitol Economics in London, when the numbers go below 100,000 it’s time to start worrying.
Just to give some perspective, the economy created 248,000 jobs in February and 148,000 in January, during a time in which there was some hope that Republicans would miraculously come to their senses before the Sequester kicked in.
Credible economists point to the fact that this is just one bad jobs report. We shouldn’t go into panic mode, at least not yet. At the same time, they are saying there are warning signs.
For example, even in its earliest stages, sequestration has had a negative effect on local economies. Think Progress reports: “The automatic spending cuts that went into effect at the start of March are spread outover a host of domestic programs and are having a real impact on communities across the country. Sequestration is cutting jobs, shutting down essential services, and hurting state economies.”
Another disturbing sign is seen in the labor force participation rate which measures how many Americans are either working or looking for work. In March, it dropped to 63.3 percent down from the 63.5 percent in February. Five years ago, the labor force participation rate was 66.1 percent.
In February, President Obama and leading Democrats warned that sequestration would hurt job creation. Here is what Nancy Pelosi said when speaking on the negative effects on the economy with sequestration and a Republican bill that amounts to sequestration on steroids.
We’re in this place, in this chamber of the House of Representatives, to represent the American people. We recognize that a thriving middle class is the backbone of our democracy and that we are here to meet the needs of the American people and strengthen that democracy. With the legislation that is before us today, we undermine, we undermine all of those efforts. So, with the sequestration, which is reaffirmed in this legislation, it would go down a path that is harmful to our economy, and harmful to our national security. Don’t take it from me, the Federal Reserve Chairman, Ben Bernanke, told Congress last week on more than one occasion that the cuts of this size, made this quickly, would hurt hiring and incomes, slow the recovery, cost the economy 750,000 jobs and keep deficits larger than otherwise.
Here is what the President said back in February:
“The impact of this policy won’t be felt overnight, but it will be real,” Mr. Obama said at the Newport News Shipbuilding company in Newport News, Va. “The sequester will weaken America’s economic recovery, it will weaken our military readiness, and it will weaken the services people depend on.”
In fact, most of America anticipated that the sequester effect on the economy and, with it, job creation would be harmful.
According to Pew, “Roughly six-in-ten Republicans, Democrats and independents alike say the sequester will have a major effect on the nation’s economy, and by overwhelming margins all agree that the effect will be negative, not positive.”
The only people who thought the sequester was no big deal, or doesn’t go far enough are conservatives.
Here is what Tea Party darling Rand Paul said: “Tea party conservatives say the $1.2 trillion in automatic spending cuts over ten years is only a start.”
John Boehner tried to sell his caucus on the “benefits” of Sequester in 2011, before trying to blame the President for the sequester and, of course, advocating more of the same policies that produced the recession.
“The president’s policies continue to make it harder for Americans to find work,” he said in a statement. “To help grow our economy and expand opportunity for all Americans, Republicans passed a balanced budget that addresses our spending problem, unleashes North American energy like Keystone, and fixes our broken tax code, and voted to replace the president’s sequester with smarter cuts and reforms.”
My mother used to have a saying about people like John Boehner. He’s trying to sit on two chairs with one behind. On one hand, he’s arguing that the savage cuts that came with sequester are hurting job growth and despite having sold sequester in 2011. On the other hand, he’s arguing we need more of same savage cuts and tax cuts for the rich that hurt job creation to create more jobs. Gee, why didn’t we think of that before? Oh wait, we did and it didn’t work over the 30 years we did try it. It begs the question, why would it work now.
Moreover, if Boehner truly believes that sequestration is bad, why would he allow a bill that amounts to sequestration on steroids? If the sequester retards economic growth, doesn’t it stand to reason that sequester on steroids will only make things worse?
As Paul Krugman noted we really don’t have a spending problem, despite John Boehner’s huffing and puffing. Spending under President Obama is way down from the days in which Republicans decided to put two wars on the country’s credit card.
That deficit has declined from 5.6 percent of potential GDP in 2011 to 2.5 percent in 2013 — that’s 3 percent of GDP, which is a lot of austerity. Not all of that cut has even hit yet — the sequester isn’t in the macro numbers yet — but the rise in the payroll tax is very clearly driving the latest bad numbers, which show big declines in retail.
Indeed, the report shows that retail jobs are down, which stands to reason. More people are working for lower wages be it as a result of being underemployed or as a result of furloughs because of the sequester. When there is less money to spend, there is less demand for retail goods. When there is less demand it means jobs are cut, or at the very least, they are not created.
Krugman goes on to repeat what he and others have said for some time.
This is really stupid; as long as we’re at the zero lower bound, austerity is a huge mistake. Yet for what, the third time since 2009, all discussion in Washington has turned away from job creation to deficits (even though the debt problem has largely faded away) and the need for an early Fed exit from stimulus (even though unemployment remains high and inflation low).
While economists have a more refined understanding of the intricacies involved, one need only do some reading about the effects of austerity on Europe’s economy to realize that savage cuts to government spending when the economy is weak retard economic growth, kill jobs and grow poverty. It’s only a matter of common sense to realize that even more savage cuts to government in America will produce exactly the same results – on steroids.
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