A new government report said spending cuts scheduled to go into effect in 2013, coupled with the simultaneous expiration of Bush-era tax cuts, will shrink the U.S. economy and raise unemployment –– contradicting the Republican claim that reducing the federal budget deficit will spur economic growth.
The Congressional Budget Office report, released on May 22, 2012, estimated that the policies slated to kick in on January 1, 2013 would slash the deficit and shrink the national economy by 1.3 percent during the first half of next year, likely throwing the country over a “fiscal cliff” into another recession.
If left in place, the current policies would reduce the federal deficit by $607 billion, or 4 percent of gross domestic product, the report said. That reduction, from immediate tax increases or spending cuts, would “represent an added drag on the weak economic expansion,” the CBO noted in its report.
“The resulting weakening of the economy will lower taxable incomes and raise unemployment, generating a reduction in tax revenues and an increase in spending on such items as unemployment insurance,” the report said.
The CBO report offers a stark contrast to a standard Republican argument. While Republicans frequently target President Barack Obama for the approximately $5 trillion increase in federal debt since he took office in 2009, this report suggested that rapid deficit reduction would cause short-term harm to the economic recovery.
The United States today is overly dependent on various government “welfare” supports in order to prop up the economy with demand for products and services. The government continues to discharge its responsibility for the health and prosperity of the economy through coerced trickle-down through redistribution achieved by the rigging of labor prices, by taxation to support redistribution and job “creation,” or subsidization by inflation, by debt financing, and by all kinds of welfare, open and concealed.
Without government supports, hopeless poverty, social alienation, and economic breakdown will persist, even though the American economy is ripe with the physical, technical, managerial, and engineering prerequisites for improving the lives of the 99 percent majority. Why? Because there is a crippling organizational malfunction that prevents making full use of the technological prowess that we have developed. The system does not fully facilitate connecting the majority of citizens, who have unsatisfied needs and wants, to the productive capital assets enabling productive efficiency and economic growth.
As long as working people are limited by earning income solely through their labor worker wages, they will be left behind by the continued gravitation of economic bounty toward the top 1 percent of the people that the system is rigged to benefit. Working people and the middle class will continue to stagnate, resulting in a stagnated consumer economy. More troubling is that this continued stagnation will further dim the economic hopes of America’s youth, no matter what their education level. The result will have profound long-term consequences for the nation’s economic health and further limit equal earning opportunity and spread income inequality. As the need for labor decreases and the power and leverage of productive capital increases, the gap between labor workers and capital owners will increase, which will result in upheaval.
Without a policy shift to broaden productive capital ownership simultaneously with economic growth, further development of technology and globalization will undermine the American middle class and make it impossible for more than a minority of citizens to achieve middle-class status.
What needs to transpire is an understanding of binary economics along with instituting credit mechanisms that will implement the goal of broadening productive capital ownership in ways wholly compatible with the U.S. Constitution and the protection of private property.
