So Is Austerity Now a Problem?

One of the more darkly entertaining things to watch in Washington right now is the dance of those who are alarmed about the pending March 1 “sequestration” of defense funds trying to make their case without admitting the underlying principle that public-sector austerity (defense or non-defense) is bad for a still-deflated economy.

The job of reconciling these points of view got harder today with the release of data by the Commerce Department suggesting that drops in federal spending were mainly responsible for plunging the four quarter GDP numbers into the red. First quarter GDP estimates are already being depressed by the growing impact of the payroll tax increase that hit on January 1, which a lot of people just didn’t anticipate.

It’s awfully tempting to argue for a delay in the defense sequester on “stimulus” grounds–if you are the kind of politician who hasn’t abundantly estopped any such argument with prior shrieks about deficit spending being the economy’s main problem.

Here are the numbers that could be used to make the economic case for a full sequester delay, from the Bipartisan Policy Center:

A slowdown of activity due merely to the possibility of a sequester has already led to reductions in force among defense contractors and sub-contractors, and in some cases significant profit declines. CBO estimated a decline of 0.7 percent in 2013 gross domestic product (GDP) growth because of the ripple effect of the sequester cuts on smaller businesses and on government personnel. For an economy that already suffers from chronic unemployment and very slow expansion, the sequester could push the nation into sub-2 percent GDP growth for 2013 and perhaps 2014.

Our estimate of approximately one million lost jobs due to sequester remains our base case if a full sequester occurs as scheduled on March 1.

But many defense hawks are sticking to the alleged defense case for getting rid of the sequester.

That’s all well and good from a personal consistency point of view. But the reality is that we are seeing the impact of fiscal decisions made on the basis of the erroneous idea that debt and deficits are the main threat to economic growth. And it would be nice to see deficit well as defense hawks admit it for a change.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.