Gov’t downsizes amid GOP cut demands
Spending by federal, state and local governments on payrolls, equipment, buildings, teachers, emergency workers, defense programs and other core governmental functions has been shrinking steadily since the deep 2007-2009 recession and as the anemic recovery continues.
This recent shrinkage has largely been obscured by an increase in spending on benefit payments to individuals under “entitlement” programs, including Social Security, Medicare, Medicaid and veterans benefits. Retiring baby boomers are driving much of this increase.
Another round of huge cuts – known in Washington parlance as the “sequester” – will hit beginning March 1, potentially meaning layoffs for hundreds of thousands of federal workers unless Congress and President Barack Obama can strike a deficit-reduction deal to avert them.
With the deadline only a week off, Obama and Republicans who control the House are far apart over how to resolve the deadlock. While last-minute budget deals are frequent in Washington, neither side is optimistic of reaching one this time.
Even as the private sector has been slowly adding jobs, governments have been shedding them, holding down overall employment gains and keeping the jobless rate close to 8 percent, compared with normal non-recessionary levels of 5 to 6 percent that have prevailed since the 1950s.
“It’s a massive drag on the economy. We lost three-quarter million public-sector jobs in the recovery,” said economist Heidi Shierholz of the labor-friendly Economic Policy Institute. “We’re still losing government jobs, although the pace has slowed. But we haven’t turned around yet.”
A larger-than-usual decline in federal spending, notably on defense programs, helped push the economy into negative territory in the final three months of 2012. Economic growth, meanwhile, has been inching along at a weak 1-2 percent – not enough to significantly further drive down the national unemployment rate, which now stands at 7.9 percent.
Although federal spending is projected to decline from 22.8 percent of the gross domestic product recorded last year to 21.5 percent by 2017, it still will exceed the 40-year-average of 21.0 percent, according to the nonpartisan Congressional Budget Office. Spending peaked at 25.2 percent of GDP in 2009.
The budget office also said the economy is roughly 5.5 percent smaller than it would have been had there been no recession.