The Sequester Drag

I’ve mentioned several times how poor a time this is to cut government spending, but our representation is doing it anyway. Yes I too am concerned about the deficit and agree spending may be reduced at some point, however not now.

Sequestration has set in and with the impacts now manifesting themselves we are getting a measure of the drag these cuts are putting on the economy. Billy Mitchel provides a great (perhaps a bit too detailed for some) breakout of these impacts in his blog today. He details the output gap between the actual and potential real GDP and the rate of growth in the gap given the spending cuts pointing out the “massive on-going permanent national income loss”…”The danger is that the US will head towards zero growth as the sequester impacts become more pronounced” His data demonstrates a rapid slowdown of the economy over the first quarter this year with the drag coming from the government, primarily the federal government. A line from his conclusion:

The US government is choosing to allow long-term unemployment to continue to rise. There is no fiscal justification for that. They should explain why they consider undermining growth and deliberately maintaining people in a state of unemployment is a sensible option for their nation.

Pretty disappointing this is continuing now that we all know the data supporting these cuts was known to be false by many, now proven to be false. Even the IMF has critiqued the US in the past couple weeks for continuing to reduce spending while economic growth is faltering.

 

 

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