As you head to the polls, remember who wrecked the economy

Published: Oct 31, 2014 6:15 a.m. ET

 

MarketWatch

From 2008 to 2017, the economic output gap will total about $6.2 trillion, the CBO estimates.

 

WASHINGTON (MarketWatch) — Republicans are heavily favored to take commanding control of Congress in next week’s midterm election, the ultimate vindication of their no-compromise strategy.

Six years ago, the voters were hopeful. Four years ago, they were angry. Two years ago, they were cautious. But now the voters are just tired, fed up with the seeming inability of any institution — public or private — to make a positive difference in their lives.

Six years after the financial crisis devastated us, the economy is still the issue that resonates most with voters. Although in many ways the economy is doing much better than it was six years ago or even a year ago, for too many Americans it hasn’t improved at all in the most fundamental sense: Their incomes aren’t rising. Their standard of living is declining.

 

Understandably, very few people would say the economy is working for them. Shockingly, a plurality of voters trust the Republicans more than the Democrats on the economy, according to a Pew Research Center poll.

Anyone who trusts the Republicans hasn’t been paying attention to what their economic policies have been. Instead of focusing on full employment and higher wages, the Republicans have doubled down on the trickle-down policies that have failed so miserably over the past 30-plus years.

Instead of pushing for economic growth that would benefit everyone, Republicans insisted that our biggest problem wasn’t jobs but deficits. They’ve insisted that Washington cut back on its spending immediately, even though the economy was (and still is) operating far below its potential. Even though the budget crisis they were trying to avert was decades away.

 

If you are skeptical that the federal government has actually cut spending, consider the facts: Federal spending totaled $3.504 trillion in fiscal 2014, 2.7% lower than the $3.603 trillion spent in 2011, and 0.4% lower than the $3.518 trillion spent in 2009. The last time federal spending declined over a five-year period was 1947 to 1951.

Excluding the fast-growing Social Security and Medicare programs, federal spending was 11% lower in 2014 than it was in 2009.

In real (inflation-adjusted) terms, total federal spending was 9% lower in 2014 than in 2009, even though the population was 4% larger and the over-65 population was 16% larger.

As a share of gross domestic product, federal spending was lower in 2014 than at any point in Ronald Reagan’s two terms in office.

The spending cuts are real. Let’s recall how they came to be.

 

The cost of Republicans’ misguided austerity policies: 6 million jobs

 

Asst. commentary editor

In January 2009, the new Obama administration came in with big ambitions to increase federal spending. The immediate need was to pass a stimulus bill to prevent the economy from sinking into a depression. Republicans (with a few exceptions) wouldn’t cooperate, even after Democrats loaded up the stimulus bill with GOP-friendly tax cuts and infrastructure spending in every congressional district.

In the past, Republicans had generally supported temporary stimulus measures, but that changed with the election of Barack Obama. And when the Tea Party swept the Republicans into a majority in the House in the 2010 midterms, the party began to say “no” to federal spending in general.

The Republicans were still the minority party in government, but they put a lot of pressure on Obama and the congressional Democrats, using every procedural and political tool at their disposal. In the summer of 2011, the Republicans took the government to the brink of default on its debt, which led to an agreement with Obama, Harry Reid and Nancy Pelosi to cut spending, by automatically sequestering funds if necessary.

A year ago, the Republicans again forced the issue with a 16-day partial shutdown of the federal government, which led to another agreement with the Democrats on spending cuts.

From this history, it’s clear that Republicans should get most of the credit (or blame) for the decline in federal spending over the past five years. Obama and the congressional Democrats were led kicking and screaming to the altar. They didn’t like it, but they agreed. Since then, Obama has pivoted to talking about economic opportunity and inequality, but to little effect.

Experience shows what a disastrous policy the spending reductions were. Cutting your way to growth didn’t work in the eurozone, and it didn’t work in the United States (although thankfully our austerity was mild compared with theirs). The Congressional Budget Office figured earlier this year that economic output was about $622 billion smaller this year than it would have been if we had been at full employment.

For the 10 years between 2008 and 2017, the CBO figured that lost output would total $6.2 trillion, about one-third of annual gross domestic product.

About 6 million more people would be working today if we’d had pro-growth policies instead of the austerity forced upon us by the Republicans. And those of us who do have jobs have seen our wages stagnate because there’s so much slack in the labor market that very few workers have any bargaining power at all with their bosses.

 

Voters are right to be disgusted. The economy has a lot of problems, cyclical and structural. More federal spending over the past five years would have helped solve some of the cyclical problems.

Republican economic policies have been a disaster.