Today’s economic growth report – up 2.8 percent in the fourth quarter – is being greeted with sighs of relief. While less than expected, it is significantly higher than growth in the earlier part of the year.
The good news is that the late summer-early autumn slump in consumer confidence triggered by Congress’s mishandling of the debt ceiling crisis is over. The economy is adding jobs again, even if it isn’t fast enough to lower the unemployment rate.
And why is that? Last month, it became clear to me that Republican legislative wins during 2011 all but guaranteed that 2012 would be a slow-growth year in terms of total jobs. Premature austerity in the public sector was undermining a significant share of gains in the private sector, which looked increasingly vibrant.
A couple of left-of-center economists who sifted through the numbers in today’s GDP report confirmed that analysis. Former White House economics adviser Jared Bernstein, now at the Center for Budget and Policy Priorities, noted on his “On The Economy” blog that layoffs at the state and local level subtracted about three-tenths of a percentage point from growth last year.
The University of Oregon’s Mark Thoma, a columnist for The Fiscal Times, offered a commentary on CBS MarketWatch that said the slowdown in government spending subtracted a full nine-tenths of a percentage point from economic growth. “If government spending had remained constant, GDP growth would have been 3.7 percent, rather than 2.8 percent,” he wrote.
The driving force behind slower government spending was the Republican demand that the government take immediate steps to lower the deficit. The stimulus plan, they charged, had failed to create a single job (never mind that the economy added more than 2 million jobs since the pit of the recession).
No one disputes the need for a long-term plan to address the budget deficit. But the question for most economists was when those measures should take effect. No less an authority than Federal Reserve Board chairman Ben Bernanke repeatedly testified on Capitol Hill last year that immediate cuts would undermine the economic recovery. The best way to address the deficit, he said, was to provide additional stimulus to get the economy back on track now, while simultaneously adopting a long-term plan that would bring the government budget back toward balance.
That isn’t what happened, of course. In the spring budget accord, Congress slashed $61 billion from last year’s budget. At the time, Bernanke estimated it would take about six- or seven-tenths of a percentage points off growth. The fourth quarter numbers suggest he hit the nail on the head.
As the economy heads into 2012, it’s beginning to feel the effects of the Budget Control Act, which was passed last August as part of the debt-ceiling deal. That will take $1 trillion over the next decade, starting in the current fiscal year.
President Obama is traveling around the country touting the green shoots of economic recovery and stoking hopes that they will flower into a “morning in America” moment, just in time for the November election. His opponents’ victories in last year’s budget battles ensure he’s carrying an empty watering can.