WASHINGTON -- Lawmakers were stunned Wednesday to learn that the U.S. economy officially dove toward a double-dip recession at the end of 2012, contracting for the first time in three and a half years amid steep declines in government spending and sluggish exports.
Policymakers were similarly stunned in Europe when reductions in government spending led to continued economic malaise, leading top economists there to question the logic behind austerity recommendations. European austerity programs are a major driver of the slowdown in U.S. exports, and several economists have argued that reductions in government spending, here and abroad, are almost solely responsible for the suddenly tanking economy.
"Austerity has been terrible for Britain and the rest of Europe," said Chad Stone, an economist with the Center on Budget and Policy Priorities, a liberal think tank. "We've not been as bad as them, but we haven't given our economy the support it needs."
Congress is still driving headlong into the forced austerity known as sequestration, scheduled to take effect in March, which requires across-the-board spending cuts at the Pentagon and among domestic policy programs.
"Today's GDP numbers show the toll that political conflict over fiscal policy is taking on U.S. economic growth," said Adam Hersh, an economist at the Center for American Progress, a think tank closely allied with the Obama administration. "The 0.1 percent economic contraction puts the United States on the precipice of recession. Our economy would certainly have grown at a faster rate last quarter, were it not for political brinkmanship over the debt ceiling and the risk of sharp fiscal contraction in the form of automatic 'sequestration' budget cuts. That contraction is now unfolding."
Warnings about the dangers of austerity have been growing louder in recent months, even from sources that conventionally applaud austerity regimes. In October, the International Monetary Fund issued a report concluding that global policymakers had dramatically underestimated the significance of government spending during a recession. As a result, lawmakers expecting modest drags from austerity instead saw their economies plunge back into a devastating recession. The United Kingdom, where unemployment now stands at 7.7 percent, has experienced a triple-dip recession. In Spain and Greece, unemployment is over 25 percent, with savage humanitarian consequences: HIV infections in Greece are up by over 1,500 percent since the austerity campaign began in 2010.
"This is a warning about the sequester," Stone said.
"As Europe has shown and the IMF has warned, inflicting austerity on a weak economy is ruinous and is likely to drive us back into a recession," said Robert Borosage of the liberal Campaign for America's Future. "Those dismissing the downturn as due to an odd drop in government spending should consider that more of these are on the docket."
And yet austerity has been the dominant policy focus of Congress since the expiration of President Barack Obama's economic stimulus package in mid-2010.
The congressional emphasis on austerity is most heavily concentrated in the Republican Party, which has been advocating deep spending cuts at every opportunity. On Sunday, House Budget Committee Chairman Paul Ryan (R-Wis.) continued the push to cut government spending, including the massive upcoming defense and social safety net cuts included in the sequester.
"I think the sequester is going to happen, because that $1.2 trillion in spending cuts -- we can’t lose those spending cuts. That was to pay for the last debt ceiling increase, let alone any future increase,"Ryan said on "Meet the Press."
But deficit-conscious Democrats, including President Obama, have taken many steps to fuel the austerity fire. Obama spent much of his first term rhetorically conceding to austerity in his talking points, saying that the government "can't create jobs," a point that he continued to make throughout his reelection campaign. In 2010, Obama froze federal worker pay, a move intended to signal his seriousness about implementing cuts.
In early January, Democrats and Republicans agreed to allow the payroll tax cut to expire -- functionally a 2 percent tax hike on American workers. That decision will suck $125 billion out of the economy and deal a 0.6 percent hit to GDP over the next year, according to JPMorgan economist Michael Feroli.
"It's certainly the case that the disappearance of the payroll tax holiday is a drag on the economy," Stone agreed.
That tax cut threatens to undermine one of the relatively bright spots in Wednesday's GDP report. As Alan Kreuger, chairman of Obama's Council of Economic Advisors, emphasized in a blog post, "Several private sector components of GDP continued to make positive contributions to growth in the fourth quarter. Personal consumption expenditures, the single largest component of GDP, increased by 2.2 percent." But the smaller paychecks resulting from the payroll tax increase will mean lower consumer spending numbers in 2013.
With serious fiscal support from Congress and Obama off the table, Washington has focused on peripheral -- and perhaps ultimately destructive -- efforts to create jobs.
In the fall of 2011, Obama pushed through free trade agreements with Panama, Colombia and South Korea, promising an increase in American exports. Exports to those three countries have declined since the deals were approved.
In April 2012, Obama and congressional Republicans celebrated the passage of "The JOBS Act," a corporate deregulation bill that both White House advisers and GOP leaders said would unlock economic growth.
Neither of these efforts has had any significant effect on the economy.
"The trade stuff was always a joke and everyone knew it. Giving them their best case, you were talking about incredibly trivial impacts on trade. In a best-case world, maybe the total increase in trade from these deals would be $50 billion a year in each direction (netting out near zero), and this would be over the course of a decade. You can't find that in the GDP numbers," said economist Dean Baker, co-director of the Center for Economic and Policy Research.
"The [JOBS Act and free trade deals], I would go with 'worthless jokes' as jobs legislation," said Josh Bivens, an economist with the liberal Economic Policy Institute.
"Growth has been sh***y," said Kevin Hassett, an economist with the conservative American Enterprise Institute.
Also on HuffPost:
Obama Is Not An American Citizen
One of the most popular Obama conspiracy theories (aka the Birther Movement), endorsed (or not denied) by the likes of <a href="http://www.huffingtonpost.com/_263532.html">Tom Delay</a>, <a href=http://www.huffingtonpost.com/_251393.html>Lou Dobbs</a>, <a href="http://www.huffingtonpost.com/_250891.html">Chuck Norris</a> and <a href="http://www.huffingtonpost.com/_242555.html">Liz Cheney</a>, it claims that Obama is not an American citizen, thus rendering his presidency illegitimate, or something. The theory hinges on the false claim that his birth certificate is fake. Birther queen Orly Taitz (a lawyer and dentist from California) continues to lead the march, despite her lawsuit getting <a href="http://www.huffingtonpost.com/2009/10/29/orly-taitz-lawsuit-thrown_n_338870.html">thrown out</a> and a <a href="http://www.huffingtonpost.com/2009/10/13/orly-taitz-slapped-with-2_n_318546.html">$20,000 fine</a>.
Obama Wants "Re-Education Camps For Young People
Rep. Michele Bachmann (R-Minn.), a proponent of many bizarre and outlandish critiques of President Obama, declared in April that the White House was trying to install <a href="http://www.huffingtonpost.com/2009/04/06/bachmann-obama-wants-re-e_n_183552.html">youth re-education camps</a>. "It's under the guise of -- quote -- volunteerism. But it's not volunteers at all. It's paying people to do work on behalf of government," said the Minnesota Republican. "I believe that there is a very strong chance that we will see that young people will be put into mandatory service. And the real concerns is that there are provisions for what I would call re-education camps for young people, where young people have to go and get trained in a philosophy that the government puts forward and then they have to go to work in some of these politically correct forums."
Larry Sinclair's Rabbit Hole Of Insanity
This one is a doozy. Larry Sinclair, <a href="http://www.politico.com/news/stories/0608/11164.html">a petty criminal specializing in forgery</a>, spread wild accusations via YouTube involving <a href="http://www.huffingtonpost.com/2008/06/18/obama-accuser-larry-sincl_n_107900.html">gay sex, drugs and possible murder committed by Barack Obama</a>. At one point reporters apparently took Sinclair seriously enough to attend a press conference he gave, most remarkable for his lawyer's appearance in a kilt, which he explained was intended to secure comfort for his unusually large sexual organs: "Those at the other end of the spectrum find [pants] quite confining."
The Case Of The Fake Thesis
In which a group of right-wingers get taken in by a satiric blog post on Barack Obama's college thesis, written ages ago, and frantically presented as real. The post, which was tagged as SATIRE, described how <em>Time</em> Magazine's Joe Klein had obtained ten pages of a thesis written by Barack Obama, in which he wrote about how the Constitution was "inherently flawed." Then Rush Limbaugh and Michael Ledeen presented this story as <a href="http://www.huffingtonpost.com/2009/10/23/fake-obama-thesis-story-g_n_332255.html">fact</a>.
Bill Ayers Wrote 'Dreams From My Father"
A popular theory on right-wing websites like <a href="http://www.freerepublic.com/focus/news/2101151/posts">The Free Republic</a>, <a href="http://www.americanthinker.com/2008/10/who_wrote_dreams_from_my_fathe_1.html">American Thinker</a> and <a href="http://www.wnd.com/?pageId=110784">WorldNetDaily</a>, claiming that educator (and former radical) Bill Ayers helped Obama write "Dreams Of My Father." There is <a href="http://www.obamaconspiracy.org/category/books/">no evidence</a> supporting this claim.
Obama As Antichrist
Is Obama the Antichrist? <a href="http://www.youtube.com/watch?v=HDB5BFoSQLs&feature=player_embedded">These</a> <a href="http://www.snopes.com/politics/obama/antichrist.asp">folks</a> think maybe so. McCain also verged on endorsing this theory during the campaign season with an attack ad called "<a href="http://www.time.com/time/politics/article/0,8599,1830590,00.html">The One.</a>"
Obama As Muslim
A theory that began circulating during the campaign season and has been kept alive by Tea Partiers, and other ultra-conservatives. It's taken different forms over the year (<a href="http://www.scribd.com/doc/6516016/Will-Obama-Swearin-on-the-Holy-Koran-or-the-Holy-Bible-After-Attacking-Jesus-Sermon-on-the-Mount">Will Obama be sworn into office on Qur'an??</a>, asks one website.) Most recently Tea Party leader Mark Williams had a meltdown on CNN, and <a href="http://www.huffingtonpost.com/2009/09/15/tea-party-leader-melts-do_n_286933.html">claimed</a> that Obama was an "Indonesian Muslim" and a "welfare thug." According to Obama and those who know him, this is not so.
Tells America In His Acceptance Speech To "Serve Satan"
Ever listened to Led Zeppelin's "Stairway to Heaven" backwards? How about Obama's presidential acceptance speech? This video suggests that the speech, like the Zeppelin song, contains a Satanic message when played in reverse. Go ahead - take a bong hit, try it and tell us what you hear.
Hugo Chavez Funded The Obama Campaign
Did Hugo Chavez fund the Obama campaign? No. But some people thought so after a Fox News affiliate issued a false report claiming that <a href="http://www.snopes.com/politics/obama/chavez.asp">he did</a>.
Michelle Banished Barack's Girlfriend To The Caribbean
One of the few conspiracy theories to go after the Obamas' marriage. The claim is that Michelle banished Barack's female aide (and suspected lover) to the Caribbean. Every person involved, including the woman, says this is <a href="http://www.dailymail.co.uk/news/worldnews/article-1076695/Obama-hit-affair-smears-following-claims-attractive-aide-banned-wife.html">false</a>.
Obama Is Malcolm X's Son
Initiated by the author of the <a href="http://atlasshrugs2000.typepad.com/atlas_shrugs/2008/10/how-could-stanl.html">Atlas Shrugged</a> blog and claiming that Obama is actually Malcolm X's son. As Ezra Klein <a href="http://www.prospect.org/csnc/blogs/ezraklein_archive?month=10&year=2008&base_name=obama_x">pointed out</a> at the time: "Honestly, who wouldn't give Malcolm props for that one?" Klein continued: "And think there's anyway we can fit Tupac into the bloodline? Or maybe Obama actually is Tupac? You know that whole shooting was some bullshit, right? Incidentally, I see no reason to stop with Malcolm. History is full of great Xs for Barack Obama to be related to. Professor X, which would explain why millions of white people lose their minds in his presence. Weapon X, which would explain the adamantium grafted onto his skeleton. XML, which would explain why it's so easy to structure his data. I'm sure there are others."