Feb 09 2013

The Looming Republican Recession

Posted by Steve Ross in National Politics, Policy

The architect of the upcoming recession.

I’ve been thinking a lot about money lately, as I’m sure most folks have. The ongoing economic situation almost demands our attention.

Even those who are doing better than average are nervous about the economy.

What we’ve learned in the past several years is that no one is immune from the poor decision making of others…and when those poor decisions involve billions of dollars, the impact is far reaching.

But the money I’ve been thinking about has less to do with my personal financial situation (decrepit as it is) and more to do with the impact of the sequester, which is predicted to send the economy into another recession if it goes into effect.

I’m not really interested in going into the guts of the cuts involved in sequestration. Rather, I’m more interested in looking at the impact on all of us, beyond the D.C. rhetoric. Even further than that, I want to look at the impact of government spending on our economy.

Understanding Spending

Total government spending in the US economy (Federal, State and Local) is about 35% of our GPD. This includes everything from Social Security to Defense spending to road construction. That number has steadily increased from 17.1% in 1948.

There are a lot of people who feel this spending is bad. They believe that private enterprise can put this money to more efficient use.

I’m not sure that many private businesses are interested in building roads or providing for defense and history has shown us that private business will raid pension funds when times are tough. With those realities in mind, the thought of private business providing for anyone but private business is laughable.

But there’s another thing to consider…we haven’t really been spending all that much more on stuff. We’re just getting older.

Where we’re spending

In 1948 government spending accounted for 17% of GDP. Social Security, which was in its infancy, accounted for .2% of that.

In the 65 years since, we, as taxpayers, have been paying into Social Security and later Medicare for our entire working lives. We did this because the government decided, on our behalf, that by doing this we would not be left destitute in our older years. We would have something…though not that much, but better than nothing.

Since 1948 Social Security and Medicare spending has increased from .2% of GDP to 8.6%. And rightfully so. We’ve had two whole generations of workers who put money into the system…many of whom are now getting that money back.

This is how it was supposed to work…and, it’s working.

The truth is, government spending outside of Social Security and Medicare have only increased about 3% to 19.7% of GDP. Considering how much we’ve grown in stature and reach over the past 65 years, this meager increase doesn’t seem like a whole lot.

Is it more money than before? Sure it is. A lot more. But a soda also isn’t a nickel and gas isn’t a dime a gallon anymore.

Why We Can’t Renege on Our Promise

When we talk about cutting Social Security and Medicare, we’re talking about breaking a promise to people who paid into the system their entire lives.

Many of these people are low income workers. That doesn’t mean they worked any less…in fact, they probably worked more and did harder work. It just means they made less money.

Cutting money from Medicare, which stands to lose 2.5% of its budget under sequestration, will mean that hundreds of thousands of older Americans will have their one link to healthcare cut.

That hardly seems like a way to reward someone for a life of hard work.

Its Not Just Medicare

The vast majority of the cuts under sequestration are not to Medicare, but considering the amount of money we’re talking about, it does mean a loss of jobs.

Job losses impact Social Security and Medicare because it means fewer people paying into the system.

This situation also basically ensures that government spending…of the kind most Republicans abhor, will have to be ramped up at an alarming rate as 1 million workers lose their jobs (bringing more unemployment claims) and the economy goes into recession (which will cause even more unemployment claims).

Make no mistake about it, this increase in the very spending they seem to hate the most will be their fault. They wanted this. They pushed for it. If the sequester holds, they’ll be getting it.

A Real Solution

If Republicans really want less spending, they should be working diligently to improve the economy. They should stop blocking legislation in search of a political win. They should come with real solutions other than tax cuts that haven’t worked for 40 years.

More people working means fewer people needing unemployment and other things they deem “entitlements”.

But real solutions aren’t on the menu. Gamesmanship is. Until that changes, the “out of control spending” that Republicans keep complaining about will continue.

There’s plenty of time to talk about whether or not the Government (at all levels) should play this much of a role in the GDP. Truth be told, businesses of all shapes and sizes benefit from it.

Business doesn’t want this spending to stop…they just want a bigger piece of the pie. That’s where cuts to “entitlements” go if the GOP Congress from the first 6 years of the Bush 43 administration is any indication, and even that didn’t pull us out of a slowing economy. It just created a jobless recovery and stagnating wages.

If Republicans are really interested in reduced government spending at all costs, I suggest they strike it from their districts. Refuse it. Put their money (of absence of money) where their mouth is. The only Republican I’ve ever seen do this is State Senator Brian Kelsey. Good on him. He’s sticking to his ideology at all costs.

For the rest of the Republicans in office it will never happen. Because the true GOP mantra is government money for me, and not for thee.