Government Spending Cuts: Industries At Risk (Demo)

This is an excellent article by Robert Kempken that was published on February 19, 2013 on IBIS World.

Has spending hit a ceiling?

The United States has faced significant challenges in managing its budget deficit and debt load for more than a decade. Faced with two wars and two recessions in the past 12 years, federal government outlays have grown at an average annual rate of 3.9%, according to the Office of Management and Budget at the White House.  Spending as a percentage of GDP grew slowly during the 2000s from 18.2% to 20.8%, but spiked to 25.2% in 2009 as the country faced a financial crisis and Congress passed the Troubled Asset Relief Program (TARP) and American Recovery and Reinvestment Act (ARRA or “the stimulus”) to prevent a meltdown. These spending programs may have helped the economy avert disaster, but they tripled the budget deficit in a single year.

Current spending is unsustainable

While the new spending programs of 2009 were meant to be temporary, federal spending has generally leveled off at those elevated amounts and tax receipts have increased only slightly. While the deficit as a percentage of GDP has declined from 10.1% in 2009 to an estimated 8.5% in 2012, the ratio is well above its average of 2.5% in the 30 years prior to the 2009 recession.  This factor has caused federal debt to balloon from 69.7% of GDP in 2008 to an estimated 104.8% of GDP in 2012.

Most people agree that this level of debt is not sustainable, but experts are split on how and when to take steps to reduce the debt.  Some want to take action now, even if it means upsetting the fragile economy, while others want to continue current levels of spending to stimulate growth and address the debt once the economy can stand on its own.  However, President Obama and Congress will likely be forced to trim spending sooner rather than later.  Unless other spending reductions are agreed upon by the end of February, across-the-board spending cuts will automatically come about in March, as agreed to during the debt ceiling negotiations in 2011. The country approached another debt ceiling in January, but Congress agreed to extend the nation’s borrowing privileges until May, setting up another debate about whether to raise the debt ceiling or cut spending.

One way or another, government spending cuts are almost inevitable.  What is unknown is exactly when they will take place and how severe they will be. While the cuts may be good for the economy as a whole over the long term, in the short term, they will negatively impact many US industries that rely on the federal government as a major customer or as a financial supporter.

IBISWorld examines the effects that a reduction in spending programs will have on the industries most reliant on the federal government.

The ONLY out of this nightmare of a depressed American economy is substantial economic growth.

The  problem is lack of  growth and the inequity of income distribution.

The stark reality is that we are in a depression reflected in rising unemployment and underemployment and instability that we will never escape from until we change our economic policy. Increasingly, more Americans will not be able to ever purchase a home, due to the packed inflationary wage and welfare base factored into the cost of building homes, which inflate prices, and will be forced to rent their entire life or depend on government living assistance––not able to accumulate equity that can help to sustain them in their retirement years. And this is the new reality now facing people in the middle class. The uncertainty of holding onto a good job is frightening to an increasingly wider base of middle-class working citizens. When you factor in the average non-salaried worker, even with a government-mandated minimum labor wage rate of $10.00+ per hour in some states, the outcome is grim. Never mind that consumer demand continues to dwindle because of insufficient income, solely tied to labor worker wages. The impact of the decline in consumer demand due to declining labor worker wages is that production will decline or desist without sustainable consumer demand.

This is all coming about because we have severely mismatched the power to produce with the possession of unsatisfied needs and wants. Those capital owners who have unsatisfied needs and wants have ready access through conventional finance to get as much or more capital as they want. Our tax laws are designed to further benefit the 1 percent by providing enormous write offs and credits to producers (corporations) who are owned by the few, who already produce more than they can consume. Those who have only their labor power and its precarious value held up by coercive rigging and who desperately need capital ownership to enable them to be capital workers as well as labor workers to have a way to earn more income, cannot satisfy their unsatisfied needs and wants. With only access to labor wages, the 99 percenters will continue, in desperation, to demand more and more pay for the same or less work, as their input is exponentially replaced by productive capital.

But if we change direction and systematically build earning power into consumers, we have the opportunity to reverse the depression perpetrated by systematically limiting the 99 percent to labor wages alone and through technology eliminating their jobs. We need solutions to grow the economy in ways that create productive jobs and widespread equity sharing. We need to systematically make capital credit to purchase capital accessible to economically underpowered people (the 99 percenters) in which the income from the capital investment is isolated until it pays for itself, and then begins to produce a stream of dividend income to the new capitalists. This can only be accomplished by enabling every person to have access to capital ownership and purchase the capital, and pay for it out of what the capital produces. It’s time good and well-intentioned people woke up and adopted a just third way beyond the greed model of monopoly capitalism and the envy model of the traditional welfare state. This will promote peace, prosperity, and freedom through harmonious justice.

http://www.ibisworld.com/media/2013/02/19/government-spending-cuts-industries-at-risk/