More Sequester Hysteria: “Jobs Will Be Lost!”

The latest Obama budget crisis is the “sequester,” an idea he came up with in the summer of 2011 that was intended to delay action on the government’s ballooning debt until after the election.  He is now leading a political and media campaign to pressure Congress to resend it.

As the chart to the right shows, The sequester consists of tiny, incremental adjustment to the rate of government spending growth over the next nine years.

President Obama and his supporters believe – or they want us to believe –  that the health of the private sector economy depends on government continuing to expand at the same rapid rate we’ve seen since 2008.  Thus, the political-media establishment tells us allowing the sequester cuts to be implemented as current law requres will result in the loss of hundreds of thousands, even millions of private sector jobs.

To test the theory that government spending fosters private sector job growth, and a cut in spending would cause private sector unemployment we searched the data and found the the most abrupt, deepest government spending cut ever: 1945 – 1948.

To pay for World War II, total government spending had exploded from $9 billion in 1941 to $93 billion in 1945.  Thirteen million young men, 20% of America’s male population, became soldiers, sailors and Marines.  Women had a more limited role in the military than today but approximately 300 thousand served during World War II.  (Today, there are about 1.5 million men and women on active duty in military service, less than 1% of US population.)

Millions of civilian men and women, even teenagers were employed in war industries manufacturing guns, tanks, ships, aircraft, uniforms, boots, etc.

When the war was over the government immediately began dramatic cuts.  Government spending dropped 68% from 1945 to 1948.

By 1948 the military had discharged eleven million men and women.  Federal civilian employment had dropped from 2.7 million in 1945 to 1.4 million in 1948.

A 68% spending cut in 2013 would transform the projected trillion dollar deficit into a $300 billion surplus!

President Obama and most of today’s political-media “economists” cling slavishly to obsolete, discredited, Keynesian economic theories.   Had they been around in 1945 they would have warned that any spending cuts would spell disaster for the economy, that unemployment would skyrocket.  They would have been wrong. 

The war in Europe against the Nazis ended in May 1945.  The war in the Pacific against Japan ended in August 1945.  There was a brief reduction in private sector employment during the spring and summer of 1945 as government cut purchases of war material.  But companies began rehiring as soon as they were able to convert from military to civilian production.

The number of private sector jobs increased 21 % from September 1945 to September 1948, the best three year period in seven decades.

A 21% increase today would be almost 24 million new jobs!  Contrast that with 6 million jobs created in the most recent three years.  Today’s chronic unemployment would turn into a labor shortage.  Wages would soar.  Jobs would go begging.

Progressives like President Obama and the Democrats in Congress promote the economic theory that government, not the private sector is the source of jobs and prosperity because it helps them justify more spending.  But actual experience contradicts the notion that government, by gobbling up an ever larger share of the economy, and wielding ever more power  and control over the private sector, can create jobs and prosperity.

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