Inviting economic misery

Inviting economic misery

August 8th, 2012 in Opinion Times

From a no-holds-barred political point of view, it's understandable that congressional Republicans continue to sabotage the economy. By denying the Obama administration any cooperation or success in passing job-boosting legislation to encourage new hiring, business investments and economic confidence, they and Mitt Romney can keep the economy down and blame the administration for lackluster economic growth. Senate Minority Leader made that shell-game strategy clear soon after Obama took office when he declared that his party's first priority would be to defeat Obama. His filibuster-oriented GOP senators -- along with their 2010 tea party-House cohorts -- have stuck to their anti-growth guns just to bring down Obama.

Now their train-wreck is in sight. Federal Reserve Chairman Ben Bernanke warned in his recent semi-annual report to Congress that if its members can't reach agreement on a tax increases and spending cuts by the end of the year, the economy will tilt back toward recession. Echoing the Congressional Budget Office's view, the Fed chief said the dip would reduce job growth in 2013 by 1.25 million to 2 million jobs.

Expiration of the Bush tax cuts and the interim cut on withholding taxes for the nation's broad middle class, along with some business tax cuts and the cloud of uncertainty and anxiety, almost certainly would induce such a slowdown. That's especially true given the current slowdown China, and the pernicious sovereign debt crisis that continues to throttle growth across Europe's euro-zone.

Eric S. Rosengren, president of the Federal Reserve Bank of Boston, built on Bernanke's warning Monday, saying the Fed should again enlarge its holdings of Treasury securities and mortgages to support growth until the economy rises to a healthier level. His remarks came after last week's monthly job report showed that despite creation of 163,000 jobs in June, unemployment still crept up from 8.2 percent to 8.3 percent. The latter showed that even after nearly three years of steady job growth under the Obama administration, restoration of the stunning 8.8 million jobs lost in the 2007-09 Great Recession remains a years-long task.

Both reinforced a New York Times report that an increasing number of manufacturers are shelving plans to make new investments and hire more workers. Why? Because the stalemate in Washington over taxes and spending cuts now seems likely to compel the deep, automatic across-the-board spending cuts and tax increases mandated by the deficit reduction and sequestration act that Republicans forced Congress to adopt last year as a condition of raising the nation's debt limit.

The spending cuts would take hundreds of billions away from the Pentagon and defense contractors, and the jobs they provide. It would also force broad cuts in federal spending in all departments and public services.

Such severe, sudden cutbacks would generate enormous job losses in every sector of the economy, and a collateral loss of consumer confidence and spending, inducing a deeper downward spiral as the economy contracts. It's already fallen from 4.1 percent in the last quarter of 2011 to 2 percent in the second quarter this year, to 1.5 percent.

It will take Republicans working with Democrats to make saner decisions on careful spending cuts and tax increases to eliminate this gathering cloud. The first steps to spare Americans the consequences of political war are to renew the Bush tax cuts for the middle class (not the top 2 percent), close corporate tax loopholes and cooperatively steer the economy away from a painful retrenchment that would stall growth for another several years.