Weak GDP Report Shows The Madness Of Push For More Spending Cuts

New data released today shows that the U.S. economy unexpectedly shrank in the fourth quarter of 2012. The 0.1 percent contraction is almost entirely attributable to cuts in government spending:

Real federal government consumption expenditures and gross investment decreased 15.0 percent in the fourth quarter, in contrast to an increase of 9.5 percent in the third. National defense decreased 22.2 percent, in contrast to an increase of 12.9 percent. Nondefense increased 1.4 percent, compared with an increase of 3.0 percent. Real state and local government consumption expenditures and gross investment decreased 0.7 percent, in contrast to an increase of 0.3 percent.

The report isn’t as bad as it could have been. Personal expenditures, non-residential investment, and business investment were all up, which is encouraging.

But the economy could be in for another blow in March, when scheduled spending cuts under the so-called “sequester” are set to take effect. And lawmakers seem to have no interest in voiding those cuts. House Budget Committee Chairman Paul Ryan (R-WI) said over the weekend, “I think the sequester is going to happen because that $1.2 trillion in spending cuts, we can’t lose those spending cuts.”

According to Macroeconomic Advisers, the sequester will knock 0.7 percent off of GDP growth this year. The Bipartisan Policy Center estimates that the sequester will kill one million jobs. As Center for American Progress economist Adam Hersh said, “we know what will happen if policymakers don’t work to scrap the sequester and eliminate the useless debt limit policy: We will have slower economic growth and job creation this year and in the future.”

Of course, scrapping the sequester — which includes equal cuts from defense spending and non-defense discretionary spending — does not mean the government simply has to plow that money back into the Pentagon. Domestic spending is headed toward historic lows. The country has a huge infrastructure gap that needs to be filled. And the American Jobs Act, which Republicans filibustered, would have significantly boosted growth according to several independent analyses.