Around 2001, the raw number of manufacturing jobs in the United States plummeted from just over 17 million to just over 14 million. After leveling off for a few years, it collapsed to around 11.5 million due to the Great Recession. It’s since seen a small rebound under President Obama’s tenure, but the continuing depression has put the long-term fate of manufacturing back on the national radar.

Yesterday, The Washington Post’s Dylan Matthews reported that, according to a new paper, the 2000 normalization of trade relations between China and the United States left domestic manufacturing employment 29.6 percent lower that it would have been without the free trade policy:

PNTR did not actually involve much in the way of new tariff reductions, but what it did offer was certainty. It suggested that previously eliminated tariffs on Chinese goods weren’t coming back anytime soon.

That reassurance, Pierce and Schott argue, mattered a great deal. All told, they argue that employment in the manufacturing sector in the United States was 29.6 percent lower than it otherwise would have been absent PNTR. That means that employment in that sector would have grown — by close to 10 percent, Pierce and Schott estimate — as opposed to shrinking considerably, as it actually did. It presumably would have grown even more in the absent of other, non-PNTR liberalizations, such as China’s admission to the World Trade Organization. The effect was four times as strong for production-line workers as for non-production workers, which is in line with the usual finding that the losers from trade tend to be low-skilled workers in rich countries.

Interestingly, much of the negative effect on manufacturing employment came not from actual job losses but from the absence of job growth that would have been expected without the agreement.

This dovetails with a report from the Economic Policy Institute that the U.S. has lost 2.8 million jobs to China since 2001.

As Matthews points out, most economists agree that freer trade, in the long-run, is a net economic gain. Most obviously, the movement of manufacturing jobs overseas gives millions of poor people around the world the chance to better their economic condition. In turn, rising middle classes in other countries can provide new markets for American exports, thus boosting jobs here at home. And cheap manufactured goods from abroad help low-income Americans by providing goods at lower cost. As Matthews says, “It could still remain the case, as free-trade advocates argue, that it helped productivity and growth in the United States overall.”

The flip side is that manufacturing jobs going overseas moves America towards an “hourglass economy,” in which there are lots of low-income jobs, a decent amount of high-income jobs, but not much in the middle. There’s evidence that America’s growing inequality itself is a drag on economic growth, as well as an argument that keeping manufacturing, research and development geographically close to one another provides a more robust exchange of ideas and feedback in a product’s supply chain.

Finally, more domestic manufacturing means more exports and fewer imports, which means a lower trade deficit. Along with monetary policy and private savings, the trade deficit is part of the macroeconomic mix that effects federal budget deficits.

Fresh off the deal to avert the so-called “fiscal cliff,” Congressional Democrats are gearing up for the next round of budget negotiations. House Minority Leader Nancy Pelosi (D-CA) said yesterday that the fiscal cliff deal was “not enough on the revenue side,” with the caucus seeming to settle on $1 trillion as a goal for increased revenue this year:

Democrats say they want to raise as much as $1 trillion in new revenues through tax reform later this year to balance Republican demands to slash mandatory spending.

Democratic leaders have had little time to craft a new position for their party since passing a tax deal Tuesday that will raise $620 billion in revenue over the next ten years.

The emerging consensus, however, is that the next installment of deficit reduction should reach $2 trillion and about half of it should come from higher taxes.

Congressional Republicans, meanwhile, are trying to portray the fiscal cliff deal as the final word on taxes. “The tax issue is behind us,” Senate Minority Leader Mitch McConnell (R-KY) pronounced yesterday.

However, budget deals cut over the last year have already cut a substantial amount of spending. In fact, even with the revenue included in the fiscal cliff deal, there have been $2.50 in spending cuts for every $1 in revenue signed into law by President Obama. That ratio increases to 3 to 1 when reduced interest payments on the debt are included.

As Bob Greenstein of the Center on Budget and Policy Priorities noted, following the GOP’s all-cuts plan going forward would blow that ratio up to 5 to 1:

If this Republican view holds, then when all of the deficit reduction efforts are tallied together, spending cuts will outpace revenue increases by nearly 5 to 1 — hardly a balanced approach. If future deficit reduction comes through an even split of revenues and spending cuts, total spending cuts will still outpace revenue increases by nearly 2 to 1. (These ratio estimates do not include the effects of interest savings; if those savings are included, the share of savings that come from spending cuts rises further.)

On its current path, revenue will not get close to where it was the last time the federal budget was balanced.

After an eleventh-hour deal to avert the so-called fiscal cliff, Republicans are already looking forward to the next manufactured crisis: the debt ceiling fight. Though raising the debt ceiling was considered a routine order of business in the past, radical Republicans took the nation to the brink of credit default for the first time in history, refusing to raise the debt ceiling if Democrats did not agree to devastating spending cuts.

The US hit its debt limit again on New Year’s Eve 2012, and House Speaker John Boehner (R-OH) seems ready to gamble with US credit again. As the Wall Street Journal’s Stephen Moore reports, the Speaker may try to avoid a sustainable deal over the debt ceiling, instead increasing the limit little by little. This would result in another debt ceiling fight every month:

I ask Mr. Boehner if he will take the debt-ceiling talks to the brink—risking a government shutdown and debt downgrade from the credit agencies—given that it didn’t work in 2011 and President Obama has said he won’t bargain on the matter.

The debt bill is “one point of leverage,” Mr. Boehner says, but he also hedges, noting that it is “not the ultimate leverage.” He says that Republicans won’t back down from the so-called Boehner rule: that every dollar of raising the debt ceiling will require one dollar of spending cuts over the next 10 years. Rather than forcing a deal, the insistence may result in a series of monthly debt-ceiling increases.

Most Americans want to avoid another debt ceiling fight like the 2011 debacle, which led to an unprecedented downgrade of US credit, an all-time low approval rating for Congress, and cost taxpayers $18.9 billion. But Boehner is taking his cues from anti-tax activist Grover Norquist, who floated the idea of a monthly debt ceiling increase as a way to extort more spending cuts from Democrats. Norquist’s strict pledge to never raise taxes, which most Republicans have signed, was the main cause of the crisis in 2011. Other Republicans seem eager to replicate the experience, including newcomer Sen. Ted Cruz (R-TX), who encouraged his colleagues to aim for another government shutdown.

If Boehner takes Norquist’s advice and institutes a regular debt ceiling battle, he may fulfill his own warning in 2011, when he predicted a global “financial disaster” if the US did not raise the debt ceiling.

After Republicans from Rep. Peter King (R-NY) to Gov. Chris Christie (R-NJ) lit into Speaker of the House John Boehner (R-OH) for cancelling a promised end-of-session vote on Hurricane Sandy relief, the House overwhelmingly approved a small portion of the needed funds on Friday. While the first vote provided just $9 billion in funds — compared to the $60 billion total requested — 67 Republicans still voted against even this bare-bones package. The majority of those Representatives had, however, supported emergency aid efforts following disasters in their own states.

The House is set to vote on the remaining $50 billion requested for the Sandy relief next week.

Eighteen of the 67 dissenters are first-term members, sworn in just a day earlier. But of the 49 Representatives with a prior House record who opposed Sandy aid, at least 37 had previously advocated for or touted emergency aid services following other disasters that affected their own constituents.

The “hypocritical” list includes:

1. Rep. Dan Benishek (R-MI): Endorsed emergency crop relief assistance after spring freezes.
2. Rep. Marsha Blackburn (R-TN): Asked for disaster relief after flooding.
3. Rep. Mo Brooks (R-AL): Promoted relief funds after a tornado.
4. Rep. Paul Broun (R-GA): applauded FEMA flooding relief.
5. Rep. Steve Chabot (R-OH): Asked for disaster relief after storms.
6. Rep. Mike Conaway (R-TX): Asked President George W. Bush to approve disaster relief after storms caused flooding.
Read more

Tea Party-aligned Sen. Ted Cruz (R-TX), within days of being sworn in, is already calling for a government shutdown unless Congress agrees to massive budget cuts.

During an appearance on Mark Levin’s radio show Friday, Cruz waxed poetic about the last time Republicans successfully shut down the government in 1995, arguing that a shutdown leads to better economic policies. “Because Republicans stood strong in 1995, we saw year after year of balanced budgets,” Cruz said. He went on to call for a repeat as Republicans hold the nation’s fiscal solvency hostage in the debt ceiling fight next month. “If we hold strong we can do that again,” the Texas Senator declared:

CRUZ: What would happen if the debt ceiling isn’t raised is it would be a partial government shutdown. We’ve seen this before, we saw this in 1995, when Republicans in the House shut down the government. What happened was it was a partial shutdown, there was some political cost to be paid but at the end of the day, because Republicans stood strong in 1995, we saw year after year of balanced budgets and some of the most fiscally-responsible policies Congress has produced in the modern-era. If we hold strong we can do that again. It just comes down to Republicans. Are we willing to stand strong and face the wrath of the mainstream media criticizing us and the president saying nasty things about us?

Listen to it:

Were Cruz and his Republican allies to succeed in shutting down the government, the effects would be felt widely. Over 800,000 federal workers would likely be furloughed, Social Security processing could be delayed, newly-eligible Medicare patients wouldn’t be able to obtain benefits, police and public safety officials could be cut, and veterans’ services would be impacted.

In addition, a debt ceiling negotiation itself is costly; last time Republicans held it hostage in 2011, the debacle cost taxpayers $19 billion.

The larger problem, however, is that by not raising the debt ceiling, Congress risks defaulting on the United States’ credit. If Cruz and his allies block a debt ceiling increase, the Treasury won’t be able to pay all its bills. As Matthew Yglesias notes, “The result won’t be a ‘shutdown’ of government functions; it’ll be a deadbeat federal government. Some people won’t get money they’re legally entitled to.” That’s why House Speaker John Boehner (R-OH) warned in 2011 that not raising the debt ceiling would cause “financial disaster” for the entire “worldwide economy.”

In his first week in Congress, Cruz is already earning a reputation as an unwavering firebrand. As he explained on Fox News Sunday this past weekend, “I don’t think what Washington needs is more compromise.”

Over the last three months, one public employee has been fired for every five private sector workers that have found a job. Since the end of 2008, nearly 700,000 public sector workers have lost their jobs, which the New York Times’ Floyd Norris notes, makes the last four years the worst for public employment since World War II:

It is by far the largest four-year decline in government employment since the 1944-48 term. That decline was caused by the end of World War II; this one was caused largely by budget limitations. The only other post-1948 four-year drop was during Ronald Reagan’s first term, when government employment fell 0.6 percent.

This sort of mass contraction doesn’t just hurt the public sector and those who depend upon its services. It drags down the entire economy, and its effects bleed over into the private sector. The Economic Policy Institute has estimated that the shrinking public sector has cost the overall economy 750,000 private sector jobs. “For every dollar cut in salary and supplies of public-sector workers, another $0.24 is lost in purchasing power throughout the rest of the economy,” EPI found.

As former White House economist Jared Bernstein wrote, “It’s obviously nuts to maintain, as some do, that the government doesn’t create jobs. It creates millions of them, and we very much need them if we’re going to educate kids, drink water, put out fires, have public safety, etc. But public sector jobs also create private sector jobs upstream and downstream.” In 2011, Congressional Republicans blocked the American Jobs Act, which would have prevented at least some of the mass public sector layoffs that have occurred.