Soft Serve Austerity

by digby

So we have disappointing news again today on the unemployment front. As Atrios points out, “it happens every spring” (lately.)

But it’s important that people understand just why unemployment is as high as it is. It’s not only because the invisible hand is pulling invisible strings. It’s also because the government has been doing doing something very specific to make it happen: firing people, exactly the opposite of what it should have been doing.

In my piece about Krugman’s various posts and articles yesterday, I mentioned this.

Here’s more

from Doug Henwood:

As of March, the most recent data we have, we were 33 months into the recovery/expansion. In a “normal,” or at least average, expansion, total employment would be up 6.6% (which is why the index number on the graph is 106.6). But now it’s only up 1.8%. But there’s an enormous divergence in public and private sector employment. In an average recovery, private employment would be up 6.7% and the public sector up 6.4%. This time, though, the private sector is up just 2.7% (4 points short of the average)—but the public sector is down 2.5% (almost 9 points below average).

Putting some numbers on that, total employment is 6.3 million below where it would be in an average recovery. (As the graph shows, the decline in employment was far deeper than average, and the recovery slower to kick in.) Of that shortfall, 4.3 million comes from the private sector, and 2.0 million from the public. So the public sector is responsible for about a third of the deficiency. But that’s twice its share of total employment.

No doubt yahoos will cheer the fall in public employment as a reduction in waste—though there’s no visible payoff in private sector job growth. (Of course, the yahoos don’t care about the continued deterioration in public services.) Public sector austerity is a major drag on the job market. If public employment had merely matched the anemic growth in the private sector, the unemployment rate would be more like 7.4% than 8.2%. And if it had matched its post-World War II average, the unemployment rate would be under 7%.

Propagandists love to go on about how the socialist in the White House is scaring the private sector, leading to a hiring strike. But public sector austerity—mainly at the state and local level—is a major drag on the job market. That doesn’t get anywhere the attention that it should.

I have some sympathy for the states and cities. They are often hamstrung by balanced budget amendments and odd triggers and locks enacted by right wingers hoping for any opportunity to drown government in the bathtub (with babies and old people.) They cannot print money or borrow on the kind of terms the feds can. But there’s no good reason why the Federal government isn’t making up the difference. Certainly, it’s ridiculous that it is operating under a hiring freeze at a time like this. But it is.

We may not have had the kind of austerity program like the UK’s which has thrown them back into recession. But our government’s soft-serve austerity has certainly been instrumental in keeping the US economy from rebounding.