Spending cuts slow economy

>>> and you know, there is this old saying in business, you can only cut your way into a profit for so long. we are learning the ugly truth about our economy and how devastating republican spending cuts could really be. here is what is happening to the economy when you cut federal spending. the commerce department announced the gdp dipped 0.1% at the end of last year. the economy has actually grown over the last 14 quarters. but that growth nearly stopped in the last quarter of 2012 . the numbers don't lie. republican-style spending cuts caused this slowdown. you can't blame the private sector . business investments, they picked up. the housing market continues to show signs of recovery as well. and you can't blame the american people either. consumer spending makes up 2/3 of the gdp . consumer sales for cars and kitchen stoves, you bet. but you can blame the government federal spending was way down in the last quarter, especially on what? defense. the pentagon spent almost 13% more than normal in the third quarter, but at the end of the year, defense spending suddenly dropped 22%. that's the biggest drop in defense spending since 1972 . the private sector did its part to grow the economy. families worked hard. they spent some money. businesses made some investments. but government spending dipped. and pulled the entire economy down with it. less spending caused less growth. but republicans like paul ryan keep saying, well, these cuts are going to boost the growth.

>> we're not preaching austerity. we're preaching growth and opportunity. our job, our goal is to prevent and preempt austerity so we can get back to growth.

>> really? countries like greece , italy and spain and france have done exactly what ryan wants this country to do. they cut government spending to pay off their debt. now the eurozone has posted record unemployment and poverty. we are facing $85 billion in automatic spending cuts on march 1st . we probably shouldn't trust republicans who think austerity is the best way to go for the american economy . let's bring in david cay johnston , professor at syracuse university college of law and pulitzer prize winning journalist. david cay, good to have you on tonight.

>> good to be here.

>> we're getting some numbers now that this progressive philosophy of government is a good thing. is government spending good for the economy? are we finding that out now in the last quarter?

>> yes. and we need to spend more money on those things that invest in the future. education, infrastructure especially that we've been using up, research, those are things that will make us more prosperous in the future, not the kind of proposals paul ryan has.

>> now, not to overstate this, but is ryan really in your opinion, professional opinion, proposing exactly what those foreign countries that were just mentioned in this piece, is it similar what he is trying to do in this country?

>> yeah. paul ryan is path logically against government spending . he objects to it, perhaps not for his family business , which gets financed with government spending . they build highways and roads. but he believes firmly and honestly that this is bad for the economy, and he is blind to all the benefits that grow and all the benefits business get because of public investments.

>> so are the republicans really worried about the debt, or is something else going on here?

>> if the republicans were worried about the debt, they would have been eager to let all the bush tax cuts expire. the cbo has shown that if we did that, debt as a share of the economy would fall to half in the next ten years. and if we were to leave the bush cuts in place, it would double. so, no, they're not serious about cutting deficits. they're serious about continuing to pose as the party of tax cuts for the rich.

>> and i want to point out that just about an hour after we got the report on the gdp , senate minority leader mitch mcconnell gave this warning about government spending . here it is.

>> this, my colleagues, is the europeanization of america. this is the pathway to greece .

>> really? your thoughts on that.

>> well, there is one way that we are on a pathway to greece . in greece they do not have an effective tax system , and people cheat left and right. we are starving the irs . i've been talking to people inside the irs whose units have been cut 30, 40, 50% in personnel, and they're not auditing, and they're not going after the tough cases that will mean the less money for the government and the less money for all government services and cause real serious problems. so in that sense we are heading toward greece by taking away a great tax system and replacing wit a weakened one.

>> why are these changes taking place in the irs ? why are they not being as aggressive as they used to be?

>> well, because for years now, the republicans have attacked the irs . and at one point, you may recall, i broke the story years ago that you were actually more likely to be audited if you were poor than if you were affluent. we've cut radically the audits of corporations. and the irs now tells corporations, well we'll only audit you on these issues and you have this many days. we'll close the audit whether we're done or not. that's not really doing the job they need to do.

>> i hear no conversation about this in washington. and it's vital to the treasury. why not?

>> because the, you know, dick cheney said deficits don't matter, and as a political matter so far they haven't. but it's also because we're not thinking about -- we've turned tax into a four-letter word, ed. and we need to recognize that our whole country and our government at its base is about taxes.

>> david cay johnston , always great to have you on the "ed show." thank you.

>>> republicans might be backing down in their effort to rig the electoral vote . but the fight is not over yet. we won this first phase