Sequester This: The Impact in Nevada, Cut Women And Children First

Yesterday’s post was theoretical — that which decreases aggregate demand will reduce our national Gross Domestic Product.  Today the White House has released what the impact of the sequestration would be specifically in Nevada, and it’s not pretty.

Education

Nevada’s not been known for its generosity with its K-12 education funding. The information obtained from the 2010 Census shows Nevada spending approximately $8,422 per student, while the national average stands at $10,499.  [Census pdf] [LVSun 2011]  Sequestration makes this situation worse.

“Nevada will lose approximately $9 million in funding for primary and secondary education, putting around 120 teacher and aide jobs at risk. In addition about 14,000  fewer students would be served and approximately 10 fewer schools would receive funding.”  [Nevada pdf] (emphasis added)

In the real world, the average teacher aide in Clark County salary is reported as $20,378.  [salary.com] Average teacher pay is reported as approximately $51,777  annually. [RGJ factchecker]  Of the $9 billion lost to state and local funding for K-12 education in Nevada, if we lose 120 teachers and aides the loss to local economies could range from $2,520,000 (if all the losses were aides) to $6,240,000 (if all the losses were teachers at state average pay.)  If we arbitrarily take the half way point, (half losses of aide jobs plus half losses in teacher jobs) then Nevada stands to lose about $4,380,000 in consumer spending as a result of the sequestration cuts.  Less spent for housing, groceries, clothing, utilities, medical needs, transportation, etc.  What this state doesn’t need as it struggles out of the Housing Bubble/Wall Street Wizard Mess Recession is a significant decrease in disposable income for consumer spending.   And we haven’t even gotten to the part wherein 10 schools would face cuts, and 14,000 fewer students would be provided with federally supported services.  It gets worse:

“In addition, Nevada will lose approximately $3.8 million in funds for about 50 teachers, aides, and staff who help children with disabilities.” [Nevada pdf]

Those would be Special Education funds. There’s no way to say it other than to observe that special education services are labor intensive.  The services are labor intensive by definition, by the terms of Individualized Educational Plans, by the needs of children who are physically or mentally incapable of performing some tasks without personal assistance.  This, perhaps more than any other example, illustrates the problems with across the board cuts without analyzing priorities.  How is it preferable to cut services for the most vulnerable children among us in order to preserve subsidies for oil and energy companies?

“Head Start and Early Head Start services would be eliminated for approximately 300 children in Nevada, reducing access to critical early education.”  [Nevada pdf]

This would be sorry enough were it not for the following unfortunate fact: “13% of Nevada’s eligible children are currently being served, leaving about 87% in need of services.”  [NHStart] That’s right, 13% of Nevada children who are eligible for Head Start  are NOW served — that’s an under-service rate of 87% and the sequestration would cut the number of children served even further.   How could the Obama Administration “over hype” the significance of additional cuts to a program that’s already struggling in Nevada.  To this, the Republicans say that “there will be no more revenue,” i.e. “We will not cut loopholes for corporate jets, corporate subsidies, yachts, and accounting tricks for overseas operations?”

Health

“In Nevada around 1,150 fewer children will receive vaccines for diseases such as measles, mumps, rubella, tetanus, whooping cough, influenza, and Hepatitis B due to reduced funding for vaccinations of about $78,000.” [Nevada pdf]

Here we go again.  We’re already in a hole and the sequestration would simple exacerbate the situation, things had been improving:

“The Nevada Health Division says Nevada ranked 40th in the nation last year for vaccine coverage in children between the ages of 19 months to 35 months. That’s up from 51st in 2010.” [KTNV]  So, in 2011 we’d moved up from 51st in the states and territories ranked in terms of childhood vaccinations to 40th, and in 2013 we can expect to revert to lower climes?  However, it’s not just kids:

Nevada will lose approximately $258,000 in funds to help upgrade its ability to respond to public health threats including infectious diseases, natural disasters, and biological, chemical, nuclear, and radiological events. In addition, Nevada will lose about $690,000 in grants to help prevent and treat substance abuse, resulting in around 500 fewer admissions to substance abuse programs. And the Nevada State Department of Health/Human Services will lose about $123,000 resulting in around 3,100 fewer HIV tests. [Nevada pdf]

What could possibly go wrong?  Hepatitis C infections? Lower substance abuse treatment levels? Fewer HIV tests?

Women

“Nevada could lose up to $57,000 in funds that provide services to victims of domestic violence, resulting in up to 200 fewer victims being served.” [Nevada pdf]

It’s ridiculous enough that the House Republicans have a substitute bill for VAWA which denigrates tribal courts and refuses services to gay and lesbian couples, and ignores abuses perpetrated on immigrant women, but to cut funding for services and shelters to abused spouses and children is beyond the pale.

A complete list of sequestration effects in Nevada can be found here, as a pdf document.

So, Why Are We Doing This?

Is it because the terrible horrible deficit demonstrates a nation at risk of bankruptcy? Is it because our “out of control” spending is taking an increasing portion of our GDP?   The truth of the matter in one chart:

To see the President’s proposal, including his last offer to House Speaker John Boehner, click here

President Obama’s Deficit Plan from White House

Okun’s Law and Sequestration

This isn’t rocket science.  For anyone wondering why Austerity doesn’t produce Prosperity, the answer lies in this simple formula.  We measure our economic growth in terms of the gross domestic product, the GDP.

Investopedia explains:

“GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country’s standard of living. Critics of using GDP as an economic measure say the statistic does not take into account the underground economy – transactions that, for whatever reason, are not reported to the government. Others say that GDP is not intended to gauge material well-being, but serves as a measure of a nation’s productivity, which is unrelated.”

In short, we can critique the use of the GDP as a measure of our economic well being for not including bartered transactions, or private sales in which sales taxes aren’t applied, or we can note that the notions of productivity and economic health aren’t necessarily related.  However,  what we can’t do is dismiss the utility of the formula, nor can we argue it isn’t one of the most commonly used (and understood) metrics applied as an economic description.

So, why is this formula plastered on this blog for the umpteenth time?  Because when Uncle Fester brashly opines that “We’ve got to cut government spending and get the economy back on track,” he’s offering up a classic demonstration of his ignorance about how we measure our economic situation.

Consumers buy things.  That’s the C in the formula. Companies and corporations buy things.  That’s the I in the formula.  Governments buy things. That’s the G in the formula.  We sell things to other countries, and we buy things from other countries. Those are the X and the M in the formula.  The greater the DEMAND for goods and services (aggregate demand in some explanations) the more wealth is generated.

Now let’s bring this down to Uncle Fester’s level by considering the life of the lowly paper clip.  Consumers buy paper clips, which are mostly used to hold sheets of paper together, or may find themselves altered to perform other tasks like being poked in the little hole in the electronic gadget to “reset” the thing, or to hang Christmas ornaments, or whatever a person might think to do with a piece of bent wire.  Businesses buy paper clips.  And, yes, various levels of government purchase paper clips.  In fact, there are about 11 billion paper clips sold in the U.S. every year.  [WSJ]

Now, imagine the impact of taking one part of the formula out of the whole.  What if government cut backs caused agencies to scale back on the purchase of office supplies?  This is the point at which the artificial demarcation between enterprise and government breaks down.  If the government manufactured it’s own paper clips there would be no need to put the G in the formula, but it doesn’t.  The federal government, like the consumers and the companies, gets its paper clips from one of two domestic producers of bent wire clips. [WSJ]

Here comes the obvious.  When the government scales back purchase orders for office supplies (like our lowly paper clip) that represents a decline in demand.  And, guess what! The formula for Aggregate Demand is exactly like the formula for the GDP.  [Investopedia]

“The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. Also known as “total spending”.  [Investopedia]

To see an example of the classic aggregate demand (AD) curve click here.   The FRED graph for our GDP to date looks like this:

The gray area shown on the chart is the recent Recession.  The blue line graphs the trajectory of our GDP to date, and the thinner red line is more technical. It’s the “Nominal potential gross domestic product,” [CBO 2001 pdf]  which assumes that the line would show what happens if everyone who wanted a job had one, and all resources were being used efficiently.  [See also: KCFED, pdf] Frankly, this one is a bit technical for Uncle Fester, so let’s keep it simple.

If the demand for paper clips is reduced, when consumers, businesses, and governments stop purchasing, the micro-graph for the subcategory of office supplies and the sub-classification of paper clips,  would mirror the overall aggregate demand.  And, the bottom line?  That which reduces the aggregate demand also reduces the GDP.

This simple, but basic, proposition from classical economics is precisely why austerity measures never produce prosperity — which we measure by using the gross domestic product.

If we can hold Uncle Fester’s attention this long, perhaps we can introduce Okun’s Law.   Okun’s Law observes that for every 1% decline in unemployment there’s a 3% increase in the GDP.  There are some issues with the “law” the first of which is that it’s not really a law, but an observable component of the United States’ economy; and, it’s a bit funky when we add in some other variables like productivity.   That said, for all its imperfections, when we reduce unemployment in the United States the GDP moves up.   This isn’t just common sense — it’s an observable and quantifiable fact.

Now we get to the meaty part.  If Uncle Fester is adamant about reducing federal spending because it’s a drag on the U.S. economy, then we can respond by saying if we lose 700,000 jobs as a result of the sequestration austerity measures, then according to Okun’s Law we will see a reduction in the U.S. gross national product.

A reduction in federal purchasing means a reduction in demand for goods and services.  Each decrease in demand means layoffs or reduction in production or offering of services and in turn means a reduction in the gross national product.   This is probably the point at which Uncle Fester will want to change the subject to something like “wasteful government spending.”

This recitation doesn’t assume that all government spending is productive.  The Pentagon has already said it doesn’t want some items Congress is enthusiastic about procuring.

“In February, the Pentagon released a budget that began the process to cut at least $487 billion in defense spending over the next 10 years. This included terminating the Global Hawk, which the military estimated would save $2.5 billion over five years; the C-27J, at a savings of $400 million; M1 Abrams updates, saving hundreds of millions of dollars; and cutting roughly 5,000 positions from the Air National Guard and reducing that agency’s budget about $300 million.”  [Military.com]

Since the cutbacks in these examples would come from Ohio, it’s predictable that Ohio representatives in Congress would revert to Okun’s Law and decry the loss of jobs in their districts.

“The budget is expected to be finalized after the November election, though the struggle over continued funding could extend long beyond that. Grant Neeley, professor of political science at University of Dayton, called this a “collective action problem.”

“(Legislators) need to cut the budget but (won’t) take those jobs in our state. Especially in an election year in a battleground state,” he said. “They’re going to provide rationale, but at the end of the day, it’s about protecting jobs in their district. If they have the choice between making a cut in their district and making a cut somewhere else, which one do you think they’re going to choose?” [Military.com]

What we can’t do is proclaim austerity begets prosperity calling for wider and deeper cuts in government spending — which turns the aggregate demand, the GDP measurements, and Okun’s Law upside down — while at the same time demanding that jobs not be cut from corporations and businesses within Congressional districts because of what will happen to aggregate demand and the local GDP and assuming Okun’s Law is still applicable.

Let’s guess that this is the point at which Uncle Fester pontificates that 25% of our federal budget goes to foreign aid.  In the fact based universe this isn’t the case: “Since the 1970s, aid spending has hovered around 1 percent of the federal budget. International assistance programs were close to 5 percent of the budget under Lyndon B. Johnson during the war in Vietnam, but have dropped since.“  [WaPo] OK, it’s not foreign aid, then it has to be “welfare.”

The total spending for Temporary Assistance to Needy Families program uses up a grand total of o.7% of our entire federal budget. [Klein]  “But, but, but,” squeals Uncle Fester, “There are more Takers than Makers…” whatever that means.  What it doesn’t mean is that there is an upward trend in the number of people participating in the TANF program.

Nor does it mean there’s an upward trend in Food Stamp program participation and costs.  (SNAP)

In our factually based universe, all federal programs for those in poverty comprise about 7% of the total federal budget. [MJ]  Yes, this is where Uncle Fester breaks in with the anecdote that he saw someone at the Food Bank who was driving a newer pickup than his.

However, all the mis-information, mis-conceptions, and anecdotal observations don’t repeal the basic rules of capitalism, and its basic understanding of Supply and Demand.  Nor, do they discredit the veracity of Okun’s Law.

We do need to reduce unnecessary spending, and we do need to increase revenue by closing loopholes which only serve to place more of the taxation burden on the middle class for the benefit of the top 0.1%.  What we do not need to do is torture the rules of American capitalism into a contortion which renders them risible and unrecognizable.  Okun’s Law is still functional, and as we see from the unfortunate examples in the Eurozone, austerity doth not begat prosperity.