The congressional GOP has smothered a more rapid economic recovery
PBS’ Frontline has an interesting piece on the GOP response to President Obama’s election in 2008, reporting that, “After three hours of strategizing, they decided they needed to fight Obama on everything.”
Part of this “everything” was the efforts of the new administration to end the Great Recession and restore the economy back to full health. From the start, the GOP sought to block measures that a wide swath of economists agreed would provide help to boost the economy and bring down unemployment. This obstructionism has been a constant theme throughout the past four years, and it continues today.
Congressional Republicans have made it clear that they intend to use every bit of leverage they can to force cuts to domestic spending in the coming year. This leverage includes threats to not raise the statutory debt ceiling and/or force a federal government shutdown after March 27, when the standing appropriations continuing resolution (CR) expires. This, of course, would represent the long-promised repeat of the spring and summer of 2011, when congressional Republicans secured over $500 billion in domestic spending cuts in CR fights and another $2.1 trillion in spending cuts in exchange for incrementally raising the debt ceiling by an equivalent amount—better known as the Budget Control Act (BCA) of 2011.
The BCA cuts have already done damage, and will all-but-surely slow growth in the rest of 2013 as well. The various components of the BCA accounted for about one-third of the total fiscal drag exerted by the major components of the “fiscal cliff” that was facing Congress ahead of the lame duck budget deal. And the components of the BCA account for 48 percent of the remaining fiscal drag unaddressed by the deal—a drag that is poised to shave 1.0 percentage point from real GDP growth in 2013. House Republicans have voted to replace the Defense cuts contained within the sequester—again rapidly approaching, following its postponement to March—in it with deeper domestic spending cuts, leaving a drag of 0.8 percentage points from the BCA for 2013, all while threatening to use the debt ceiling and CR as leverage to get their way.
If this ideologically driven objective of deeply cutting spending is met, this will represent just one more way that the GOP Congress has managed to delay full recovery from the Great Recession. The evidence continues to pile up that that these spending cuts, forced on a still-depressed economy, can easily throw the nation back into an outright recession and prolong the nation’s economic misery.
Is this an overly harsh read on the motivations of GOP members of Congress? Not at all. Motivations aside—regardless of whether they deeply believe that their ideological goal of reducing government spending will help the economy or whether they think that a slowed economy will simply help their own electoral prospects—the facts are simply that congressional Republicans have consistently hamstrung efforts that a large consensus of economists agree would have provided crucial help in lowering American unemployment. Specifically, they have objectively weakened the American Recovery and Reinvestment Act (ARRA), repeatedly filibustered routine extensions of emergency unemployment benefits, blocked aid to state governments, filibustered infrastructure investment, used extreme legislative vehicles like refusing to follow precedent on the typically pro forma votes to raise the debt ceiling to extract more economically damaging government spending cuts, blocked passage of a majority of the American Jobs Act (AJA), demanded counterproductive offsets to fiscal stimulus, and attacked the Federal Reserve’s expansion of the monetary base and other policy responses intended to lower unemployment. What follows is an abbreviated chronology.
The American Recovery and Reinvestment Act (111th Congress)
It may seem odd to bring up ARRA in the context of obstructionism—after all, ARRA actually passed and really was the largest piece of discretionary fiscal policy stabilization ever to emerge from Congress. But it’s useful to remember that the ARRA passed without one single vote from a GOP Representative, and with only 3 of 41 GOP Senators voting for it (and one of these three—Arlen Specter—was a Democrat within the year, in large part because of this vote).
So, they tried their mightiest to obstruct it. Even the opportunity cost of just getting these GOP Senate votes was expensive. These votes were needed to push past the filibuster-proof 60 vote threshold—and it’s a slam-dunk that ARRA would have been successfully filibustered without them. The price tag of getting these votes was nearly $30 billion in school construction funds stripped out of the bill at the insistence of Sen. Susan Collins (R-Maine), one of the three GOP votes in the Senate. These funds would have supported roughly 250,000 additional jobs. Further, the final version also included the nearly $70 billion cost of a one-year extension of the Alternative Minimum Tax (AMT) “patch”—a provision that provided no stimulus at all, since it was done literally every single year, but which was included to woo another GOP Senator, Olympia Snowe. If this amount could instead have been spent on productive stimulus, it could have created roughly 750,000 jobs. In short, just luring the minimal GOP votes needed to pass ARRA in the Senate likely kept it from supporting or creating nearly a million more jobs than it did.
Filibusters of unemployment insurance and routine economic support (111th Congress)
Securing 60 votes for ARRA in the Senate was necessary because virtually every piece of economically supportive legislation has effectively been filibustered since the start of the 111th Congress (in Jan. 2009). In Feb. 2010, Senate Republicans blocked cloture on the HIRE Act (H.R. 2847) and managed to strip down stimulus provisions, paring the bill to about $15 billion in poorly targeted economic stimulus; the bill originated as the House-passed Jobs for Main Street Act, a $75 billion package of infrastructure investments, aid to state governments, and other job creation measures. That same month, Sen. Jim Bunning (R-Ky.) filibustered the House-passed Temporary Extension Act (H.R. 4691), which would have extended emergency unemployment benefits, COBRA health insurance subsidies for the unemployed, and expanded Small Business Administration loan guarantees, among other provisions. In March 2010, Sen. Tom Coburn (R-Okla.) filibustered the Continuing Extension Act (H.R. 4851), a similar package of economic stimulus targeted toward the unemployed. In June 2010, Senate Republicans repeatedly blocked cloture votes on the House-passed American Jobs and Closing Tax Loopholes Act (H.R. 4213), which would have provided infrastructure investment incentives, business tax credits, a summer youth employment fund, and a six-month extension of emergency unemployment benefits, among other provisions. By July 2010, more than 2.5 million workers had lost unemployment benefits for at least a spell of time because Senate Republicans continued to block the Emergency Unemployment Compensation (EUC) program, objecting to typically pro forma emergency designations for routine economic support (i.e., demanding offsetting “pay-fors”).
Discretionary spending cuts (112th Congress)
At the start of the 112th Congress, incoming Speaker of the House John Boehner (R-Ohio) pledged to cut non-security discretionary (NSD) back to 2008 levels, which entailed decreasing spending by roughly $100 billion (22 percent). Senate Republicans had filibustered an omnibus appropriations bill in Dec. 2010, leaving the U.S. government running on a ”continuing resolution” holding discretionary spending at current levels—an increasingly common practice in an era where partisan divides keep the full congressional budgeting process from functioning. In Feb. 2011, House Budget Committee Chairman Paul Ryan (R-Wis.) and Appropriations Committee Chairman Hal Rogers (R-Ky.) proposed a budget that would reduce discretionary spending by a prorated $58 billion for the remaining 7 months of fiscal 2011, relative to the president’s budget request (a 21 percent cut on an annualized basis). After negotiating a series of shorter continuing resolutions—all of which cut spending levels—and with a government shutdown looming imminent, House Republicans and the administration compromised on a $1.049 trillion discretionary spending level for fiscal 2011, cutting NSD spending by $38 billion relative to fiscal 2010 levels. Much of the cuts for 2011 were phantom savings (e.g., rescinding funds that would never have been spent), but contrary to too much discussion of these phantom cuts, they had real consequences by substantially reducing the discretionary spending baseline from which subsequent cuts were made because the Congressional Budget Office (CBO) indexes discretionary spending levels for inflation. CBO’s Jan. 2011 budget outlook showed the baseline for discretionary outlays revised downward by $351 billion over fiscal 2011–2021 because of decreased funding levels in continuing resolutions, with an additional $40 billion downward revision in their March 2011 baseline update. The full-year appropriations bill reduced projected discretionary outlays by an additional $122 billion over fiscal 2011–2021. Cumulatively reducing the baseline for discretionary spending by some $513 billion resulted in deeper and more damaging spending cuts extracted from last summer’s debt ceiling fight. In short, the GOP had much more success than is commonly recognized in forcing large spending cuts in the first half of 2011.
Hijacking the debt ceiling and extracting the Budget Control Act (Summer 2011)
In 2011, Congressional Republicans refused to undertake the customarily pro forma increase in the statutory debt ceiling, arguing that they would only vote to do so if coupled with much deeper spending cuts than extracted from the CR budget negotiations. And as the Washington Post detailed at great length, this economic hostage-taking was premeditated rather than spontaneous Washington dysfunction, a “natural outgrowth of a years-long effort by GOP recruiters to build a new majority and reverse the party’s fortunes.”
The Obama administration unfortunately acquiesced to the GOP demand that each dollar increase in the debt ceiling be matched with a dollar reduction in spending. To be clear, the GOP members of Congress were not seeking deficit reduction, they were seeking spending cuts. Congressional Republican leadership abandoned negotiations over a deficit reduction “grand bargain,” first with Vice President Biden, then from negotiations with President Obama. To be clear, we do not think such a “grand bargain” would have been prudent economic policy, but this narrative does belie GOP claims to be motivated by concerns over large deficits.
Two-and-a-half months after the Treasury Department declared a “debt issuance suspension period” of unconventional cash-management tools to avoid a default on U.S. debt, the Budget Control Act (BCA) was enacted on Aug. 2, the last day Treasury could avoid defaulting. The BCA proved the second greatest budgetary impediment to recovery in the so-called “fiscal cliff,” as explained in this briefing paper. We estimated that the first phase of discretionary spending caps would shave 0.3 percentage points from real GDP growth in 2012 and lower employment by 323,000 jobs, as detailed in this briefing paper. Ratcheting down discretionary spending caps will shave 0.4 percentage points from real GDP growth in 2013, decreasing employment by 529,000 jobs relative to pre-BCA law; should they take effect, the second phase of scheduled automatic sequestration cuts—which have been postponed until March—will slow growth by an additional 0.6 percentage points and reduce employment by 660,000 jobs in 2013. Again, GOP success in using all legislative leverage at their disposal to force spending cuts has (and will continue) to slow economic recovery.
Blocking the American Jobs Act (Fall 2011)
In Sept. 2011, Obama proposed the AJA, a $447 billion package of infrastructure spending, unemployment benefits, funds for rehiring teachers and first responders, and tax cuts for households and businesses, among other provisions. Senate Republicans filibustered the full $447 billion AJA, and subsequently blocked smaller subsets of the AJA that would have put a dent in the unemployment rate, notably funds to rehire teachers and first responders as well as $56 billion worth of infrastructure investments. All variations of the AJA would have been financed with surtaxes on millionaires—meaning that long-run deficits would actually be reduced by the AJA. President Obama proposed another variation of the AJA in his fiscal 2013 budget, which we estimated would have lowered the unemployment rate roughly half a percentage point. Congress only enacted a scaled back extension of the payroll tax cut (the AJA would have expanded it for workers and employers) and EUC (Congress unwisely lowered the maximum duration of benefits in high unemployment states from 99 weeks to 73 weeks in the midst of a long-term unemployment crisis). We estimated that full passage of the AJA would have boosted real GDP growth by 1.4 percentage points and employment by more than 1.6 million jobs by the end of 2012, relative to the scaled back extension of ad hoc stimulus that made it through Congress.
Demanding offsets and “pay-fors”
As noted above, the AJA was scuttled by Senate Republicans’ demands that stimulus spending be offset to make it deficit neutral—but they demanded this offset come only in the form of spending cuts, not tax increases. All economic evidence shows that this is a deeply counterproductive demand. Nonetheless, Senate Republicans proposed paying for an extension of the payroll tax cut by cutting federal employees’ pay and reducing federal employment by hundreds of thousands of jobs—both of which would reduce aggregate demand. An additional $231 billion in spending cuts would have been layered on top of the discretionary spending cuts Republicans extracted with the BCA—to more than pay for a $120 billion tax cut. (The purpose of a pay-for is to offset the cost of a policy, not its beneficial impact.) The payroll tax cut was eventually extended with an emergency designation (i.e., deficit-financed), but other demands for “offsets” will take a toll on aggregate demand. In 2010, a $26 billion package of aid to state governments for rehiring teachers and helping states pay for Medicaid (H.R. 1586) was partially paid for by rescinding $12 billion from the Recovery Act’s expansion of the Supplemental Nutrition Assistance Program (SNAP, or food stamps). Food stamps, by the way, yield the highest fiscal multiplier of any fiscal stimulus, according to Moody’s Analytics chief economist Mark Zandi. Most recently, House Republicans have proposed replacing sequester cuts to the Department of Defense—part of the Republicans’ price for raising the debt ceiling in 2011—with even deeper domestic spending cuts; the Spending Reduction Act of 2012 (H.R. 6684) would have replaced $98 billion of defense cuts with $334 billion in nondefense discretionary and mandatory spending cuts as well as revenue.
Hamstringing monetary policy
The congressional GOP does not have a direct means of obstructing expansionary monetary policy, of course, but their constant strategy in recent years has been to decry any attempt by the Federal Reserve to boost economic activity as dangerously inflationary. Some have even gone so far as to argue that the Fed should have its mandate changed to target only price stability and not full-employment. Needless to say, this claim that the Fed has been recklessly aggressive in trying to lower unemployment is clearly wrong. The Fed has actually been more aggressive than other macroeconomic policymakers in trying to address the crisis, it’s true. But that’s a very low bar, and the congressional GOP have consistently tried to push back against even this too-mild effort by the Fed to engineer a rapid recovery. While it remains an open question about just how effective more-determined Federal Reserve policy could be to boost recovery, there is no question that the risks of pushing harder on the monetary policy lever to restore growth are deeply asymmetrical: there are huge upsides if it effectively spurs growth and very little downsides if it fails.
Concern that the GOP Members of Congress have a vested interest in slowing economic recovery has been brewing for quite some time. Speaking at Cuyahoga Community College ahead of the election, former President Bill Clinton accused congressional Republicans of deliberately trying to keep the unemployment rate elevated for political gain. Clinton’s remarks echoed similar comments made by Sen. Chuck Schumer (D-NY) at the Economic Policy Institute during the 2011 debt ceiling fight:
“[W]e need to start asking ourselves an uncomfortable question — are Republicans slowing down the recovery on purpose for political gain in 2012? Senator McConnell made it clear last October that his number one priority, above everything else, is to defeat President Obama. And now it is becoming clear that insisting on a slash-and-burn approach may be part of this plan — it has a double-benefit for Republicans: it is ideologically tidy and it undermines the economic recovery, which they think only helps them in 2012.”
For those closely watching the budgetary and economic policy fights of the past four years, it’s pretty hard to refute the analysis of Clinton and Schumer.