IMF: Sequestration Cuts US Growth Nearly In Half, Barely Dents Deficit
by Bridgette P. LaVictoire, Lez Get Real
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It would be easy to say that the Republicans planned it this way so as to make sure that they get their agenda through, which includes more cuts to spending, but they are patriotic Americans and aren’t supposedly doing that, right? Well, hopefully they will pay attention to the recent report out of the International Monetary Fund (IMF) regarding the damage being done to the US economy by the indiscriminate cuts in federal spending known as sequestration.
The IMF stated that the risk to US growth from the cuts meant that the economy was “modestly tilted to the downside”, and noted that the reduction of $85 billion in government expenditures this year had slowed down demand and investment. The cuts in payroll taxes didn’t help much either.
IMF Managing Director Christine Lagarde and the IMF estimated that the decreases in federal spending and higher taxes may have resulted in a drop of projected growth by up to 1.75 percentage points. The IMF estimates growth to be just around 1.9%. Without the sequestration cuts, that amount would have been around 3.5%.
This means that there will be a delay in the rebounding of the US labor market and long-term growth was expected to be very slow. Currently, around one in seven Americans cannot find full-time jobs.
Lagarde stated “The sequester cuts not only reduced growth in the short term, but they also hurt the most vulnerable and they produce very undesirable effects in that regard.”
Republicans have pushed the sequestration and austerity cuts in the mistaken belief that cuts in spending lead to increased growth. The study behind that belief has been proven to not only be false, but riddled with inaccuracies, misconceptions, preconceptions and a lot of wishful thinking.
The IMF warned American lawmakers that “[T]he indiscriminate reductions in education, science, and infrastructure spending could also reduce medium-term potential growth.” President Barack Obama and some in Congress have been trying to replace the sequestration with targeted and gradual reductions in spending, an approach endorsed by the IMF.
Unfortunately, House Republicans have lauded the indiscriminate reductions even as it hurts the US economy. They continue to cling to the disproven and pretty much destroyed research claiming austerity leads to growth.
Austerity cuts have lead to near economic ruin in Greece, Spain and Ireland to name a few nations.
In the short term, the Congressional Budget Office has predicted that the US budget deficit would fall by roughly half form $1.1 trillion in 2012. Unfortunately, the CBO had already predicted a drop in the deficit to nearly $850 billion in 2013, which is just about $200 billion more than they are currently predicting the deficit to drop. Unfortunately, a slowing down or stalling of growth in the long term will likely result in the deficit going up not down in the long run.
The IMF noted that the reduction in the deficit was “excessively rapid and ill-designed. A slower pace of deficit reduction would help the recovery.”
Unfortunately, it is unlikely that the Republicans are going to listen to anything other than the flawed research that they have been pushing for some time now.
