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ISU Economics Scientist: Federal spending cuts would be a blow to Iowa’s economy

This news story was published on February 26, 2013.
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Dave Swenson, an Iowa State University scientist

Dave Swenson, an Iowa State University scientist

AMES, Iowa – Federal spending cuts will have a direct impact on Iowa’s economy if Congress does not act by the March 1 sequestration deadline. Dave Swenson, associate scientist in the Department of Economics at Iowa State University, says if there are across-the-board cuts Iowa stands to lose around $292.1 million in direct federal funding, and such a large cut could harm the state’s slow recovery.

“Contrary to what many people say Iowa hasn’t been growing; it hasn’t been recovering as fast as the nation. We actually have some evidence that our workforce is contracting,” Swenson said. “A further loss in employment is really bad news; it’s the kind of bad news Iowa’s economy currently can’t absorb.”

Swenson compiled data on direct federal spending for defense, non-defense and capital expenditures in Iowa to calculate the dollars and jobs that could be lost. His calculations are specific to federal employment in Iowa and do not include the full scope of federal spending. As outlined in the table below, defense would take the biggest hit as it receives the largest share of federal spending. The table is based on an average 8.9 percent across-the-board cut.

Were the cuts to occur, it would eliminate 3,570 jobs and cut household incomes by more than $265 million. That will have an even greater impact on the economy, Swenson said, as federal agencies and employees then spend less for things like supplies, household items and transportation.

Full impact unknown

There are several unknown factors that make it difficult to determine the full impact of the potential cuts. While nearly every federal agency would have to cut roughly the same amount of money, how each agency allocates those cuts will vary. Swenson expects the federal government will try to limit layoffs and implement employee furloughs instead. But that doesn’t change the impact on incomes.

“A 20 percent reduction in pay is better than 100 percent. But if I have 10 people, all of whom are working 20 percent less, there’s still the equivalent of two jobs missing,” Swenson said.

Iowans can expect to see the impact on everything from agriculture subsidies to highway spending to homeland security if the cuts become a reality. However, certain programs are exempt.

“The big safety net programs are not to be touched by the sequestration, so that you don’t jeopardize Social Security, Medicaid, temporary income assistance to needy families and food stamps . Those are the types of safety net programs that we don’t want to be subject to the sequestration,” Swenson said.

According to a Bloomberg News poll, 54 percent of Americans want Congress to take action to prevent the automatic cuts. However, 40 percent said the government should let the cuts happen. Swenson argues that now is not the time for a massive budget reduction.

“If we reduce federal spending too much we will force the economy into a recession, unemployment will go up, and average household well being will go down,” Swenson said. “The people who are saying ‘let’s just bite the bullet and reduce government spending’ aren’t thinking through this far enough. They don’t understand that it will have very meaningful consequences for them.”

Find Swenson’s full report at here.

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12 Responses to ISU Economics Scientist: Federal spending cuts would be a blow to Iowa’s economy

  1. Anonymous Reply Report comment

    February 26, 2013 at 10:51 am

    My buddy just recieved a contract to make 200,000 mice parachutes – seem their going to poisen them and drop them over Guam so that the snakes there will eat them and die – of course birds and other animals also eat mice ?

    • Katie Reply Report comment

      February 26, 2013 at 11:06 am

      There are no birds left in Guam because the brown tree snakes have eaten all of them! The mice are laced with acetaminophen. They are using parachutes with streamers so the mice will get hung up in the trees where the snakes live and will not make it to the ground where other critters will eat them. It is very important to control these snakes because they sneak on airplanes and ships and make it to other countries and destroy native fauna. Think of what has happened to our Everglades and the python problem. This is one effort I support financially. They have been doing a pretty good job as there have been no brown snakes found in Hawaii in 16 years, but the problem in Guam has gotten so very much worse that it is out of control.

    • LVS Reply Report comment

      February 26, 2013 at 11:08 am

      @Anonymous-I read about that. It seems they have a brown tree snake that has killed almost all of the wild life. The snake is not native to the island so they are parachuting dead mice that are laced with aceaminimum(not sure of spelling)Tylonel, which is deadly to the snake but not to other animals. They are parachuting them in to try to get the chutes hung up in the trees where the snakes are.

  2. a citizen Reply Report comment

    February 26, 2013 at 9:14 am

    The sequester bill was signed in 2011. Why did Mr. Swenson wait until the act was only days away to take affect before making his worries and fears known? A two year delay before deciding to show any concern rather damages ones credibility. And I suppose the same thing could be said about our govt.

  3. 4ever49 Reply Report comment

    February 26, 2013 at 9:10 am

    A scientist in the economics department, who knew? I thought economics was more an art than science.
    What his study shows is probably the case but it does not address the other side – the benefits of not borrowing 40+% of those dollars with our kids & grands having to repay in the future. I know this is a small pebble in a very large and deep pond but we have to start somewhere.
    I note that he includes agriculture subsidies taking a hit. In my view it’s about time – why are we subsidizing when they already benefit from high price of corn thanks to ethanol demand? The value of farm land has soared as a result – why are we rewarding them even more?
    Who knows, maybe after the cuts the sun will still come up in the east and the birds will sing – then we can get onto the real battle of actually balancing a budget – the budget – something Obama and the Senate have failed to produce for 4 years.

    • LVS Reply Report comment

      February 26, 2013 at 10:18 am

      @4ever-you are correct in your statements, but, it is even worse. First we subsidize the farmers to raise the corn for ethanol, then we subsidize the ethanol production, and then they reduce our drinking water (20 gal. of water to make 1 gal. of ethanol). And finally we buy it to run our vehicles (and pay tax on it) just to have it clog up our vehicles and burn the motors out faster. All in the name of going GREEN. What B### Sh##.

      • 4ever49 Reply Report comment

        February 26, 2013 at 10:47 am

        I was thinking the ethanol subsidy had finally disappeared. Maybe not. You are right on the water consumption – all for going Green.
        Let’s not forget that Iowa also undervalues ag land by using a “productivity index” instead of market value to assess ag land for tax purposes. If they were at market, taxes could be 2-3 times higher – and in line with other classes of real property. Just another farmer preference item.

      • LVS Reply Report comment

        February 26, 2013 at 11:04 am

        @4ever-I know the wind subsidy was discontinued unless they brought it back. You could be correct about the ethanol subsidy. I am pretty sure I read they discontinued the soy subsidy.

  4. as seen from here Reply Report comment

    February 26, 2013 at 9:02 am

    Knock off subsidizing farmers for growing corn to make gasoline more expensive, harmful to engines and auto parts and making corn so high many people can’t get it anymore. Pay not to raise some crops, subsidize them for raising others is right there with, welfare,free healthcare, education,food, phones, foreign aid to countries wish ing us harm, electing Obama TWICE, and all the other liberal b.s. in Iowa and states with the same ignorant policies!

    • Anonymous Reply Report comment

      February 26, 2013 at 11:11 am

      These liberal policy’s are and have been supported by most Republicans for decades. Bush started the prescription drug entitlement instead of putting that money into SS that could have helped replace some of the billions of dollars government has taken from it. So please include electing Bush TWICE to your list of Iowa and states with the same ignorant policies!

  5. William Jefferson Clapton Reply Report comment

    February 26, 2013 at 8:04 am

    Such a shame that someone supposedly “educated” could be so lost when it comes to reality.

    • another brick in the mall Reply Report comment

      February 26, 2013 at 8:48 am

      You’ve got to explain your position better than that.