How Government Budget Cuts Significantly Reduced U.S. GDP Last Year

The Commerce Department reported last week that the economy grew at a 2.8 percent rate in the fourth quarter of 2011, higher than GDP growth has been recently, but still not enough to significantly bring down unemployment. And as the New York Times’ David Leonhardt explained, one of the major drags on growth has been the budget-cutting that has been going on at all levels of government for the past year and a half:

The public sector has been shrinking for the last year and a half — mostly because of cuts in state and local government, with some federal cuts, especially to the military, playing a role as well. In the fourth quarter, government shrank at an annual rate of 4.5 percent.

Over the last two years, the private sector grew at an average annual rate of 3.2 percent, while the government shrank at an annual rate of 1.4 percent.

The combined result has been economic growth of 2.3 percent.

“The obvious conclusion seems to be that economic growth, and employment growth, would have been significantly stronger over the last two years without government cuts,” Leonhardt noted.

Of course, Republicans in Congress have been staunchly opposed to helping states weather the nation’s continuing economic storm, forcing them to resort to layoffs that not only hurt the economy, but leave communities worse off, with fewer teachers, firefighters, and police officers. (Some teachers in Pennsylvania have decided to work without pay, while one school district in that same state decided to use sheep to cut its grass in order to minimize costs.) More than half a million public sector workers have lost their jobs in the Great Recession.

For those conservatives pushing austerity as a solution to the nation’s economic woes, these numbers should come as a bit of a warning, as should the fact that the United Kingdom’s austerity program has led it’s economy to do worse than it did during the Great Depression.