Shipyard workers wait for President Obama to speak about looming
automatic federal budget cuts Tuesday in Newport News, Va.
Getting economists
to agree with each other isn't easy. But Congress and the White House have
managed to unite them.
More
than 95 percent of top U.S. economists believe growth is "likely to be
negatively affected" by the automatic federal spending cuts that are
scheduled to kick in Friday, according to thelatest survey by
the National Association for Business Economics.
Federal
Reserve Chairman Ben Bernanke joined the economists' chorus Tuesday, telling Congress that the
spending cuts' harm will be "significant," with "adverse effects
on jobs and incomes."
Americans
nodded in agreement. A poll by the Pew Research Center and The Washington Post finds that by a margin of 62 percent to
18 percent, people think the sequester will have a mostly negative impact on
the economy.
This nearly
universal disdain is being directed at the blunt budget ax known as
sequestration. Unless Congress takes action, across-the-board cuts, effective
Friday, will chop $85 billion in federal spending over the seven months
remaining in this fiscal year. Half the cuts must come from the military and
half from "discretionary" domestic programs, such as those involving
medical research and border patrol.
But while economists
are clear that sequestration will cost jobs and depress growth, they differ
over how long the harm will persist, and how deep the damage will be.
The nonpartisan
Congressional Budget Office offered a typical assessment, estimating that the
cuts will knock 0.6 percentage point off the annual growth rate and cut 750,000
jobs by year's end.
In the NABE poll,
most economists agreed with that ballpark estimate, figuring sequester will
shave roughly a half-percentage point (or maybe a little less) from this year's
gross domestic product. In other words, instead of growing at a rate of, say,
2.9 percent in 2013, the GDP might expand at only 2.4 percent. That's enough to
retard job growth, but not to derail the recovery.
But some economists
are much more worried. In the NABE survey, a third of economists see more harm
coming than the CBO does, and 13 percent fear growth could be cut drastically —
by more than a full percentage point. Given that in 2012, the U.S. economy grew
just 2.2 percent, losing a full percentage point could put the economy on track
for another recession.
Some conservative
economists, however, have a more sanguine outlook. While agreeing that growth
will take a brief hit, they say it's better to cut spending now — even if with
an ax — rather than do nothing as federal borrowing grows to unsustainable
levels.
Besides,
in a $16 trillion economy, the budget cuts would sting for a bit but
"would not amount to a lot, especially since the private sector appears to
be picking up more steam," Gary Becker, a conservative economics professor
at the University of Chicago, wrote on his economics blog.
No matter how things
turn out in the long run, this much is clear: Friday could be a depressing day
for people who earn their living with the help of government funds. Threatened
workers would have to start bracing themselves and reducing personal spending —
even if it takes a few weeks for the sequester cuts to make their way through
the funding pipeline to finally smack them.
In general,
economists are concerned about four big areas of impact:
The Military
Half
of the coming cuts, roughly $45 billion in this fiscal year, are concentrated
in the defense sector and aimed at private contractors, such as those involved
in replacing the aged aerial-refueling tankers or maintaining ships. Last week,
the Pentagon notified Congress that it may have to furlough some 800,000 civilian employees, asking
them to take a 20 percent pay cut — by staying home one day a week without pay
through this fiscal year.
Travel
At a media briefing,
Transportation Secretary Ray LaHood said he would institute unpaid furloughs
for air traffic controllers, which could cause "delays of up to 90 minutes
during peak hours" at major airports. Also, the Transportation Department
would have to shutter more than 100 air traffic control towers. Disruptions at
popular destinations might also depress travel. Just one example: workers at
Yosemite National Park will have to put off plowing snow from the road leading
into the park, leaving many visitors stranded until the snow melts.
Local Government
Many jobs related to
law enforcement and emergency response rely on federal funding. For example,
the Federal Emergency Management Agency would cut grant funding that supports
firefighter positions and emergency-management personnel. About 1,000 FBI
agents and hundreds of federal prosecutors also could lose jobs or be ordered
to take unpaid furloughs, which could undermine local crime-fighting efforts.
Title I education funds also would be cut for more than 2,700 schools, putting
the jobs of about 10,000 teachers and aides at risk.
Consumer Confidence
The coming job cuts
and unpaid furloughs could reduce consumer spending at a time when many people
already are feeling squeezed by higher payroll taxes and gas prices. In a
written assessment of the latest consumer data, Chris Christopher, director of
consumer economics for IHS Global Insight, said rising confidence could quickly
reverse. "Rising gasoline prices and the sequester are on many households'
radar screens," he said.
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