I know I’ve mentioned it before, but if we saw the same public sector growth over the last few years that is customary during economic downturns, or just growth consistent with population growth,[the unemployment rate would be at least a full point lower. In fact, higher unemployment is a consequence of austerity, particularly at the state and local level. The economy has been given a shot of stimulus from a variety of sources, but much of that has been counteracted by this austerity. Paul Krugman explains today.
In fact, if it weren’t for this destructive fiscal austerity, our unemployment rate would almost certainly be lower now than it was at a comparable stage of the “Morning in America” recovery during the Reagan era.
Notice that I said “government in America,” not “the federal government.” The federal government has been pursuing what amount to contractionary policies as the last vestiges of the Obama stimulus fade out, but the big cuts have come at the state and local level. These state and local cuts have led to a sharp fall in both government employment and government spending on goods and services, exerting a powerful drag on the economy as a whole.
One way to dramatize just how severe our de facto austerity has been is to compare government employment and spending during the Obama-era economic expansion, which began in June 2009, with their tracks during the Reagan-era expansion, which began in November 1982.
Start with government employment (which is mainly at the state and local level, with about half the jobs in education). By this stage in the Reagan recovery, government employment had risen by 3.1 percent; this time around, it’s down by 2.7 percent.
Next, look at government purchases of goods and services (as distinct from transfers to individuals, like unemployment benefits). Adjusted for inflation, by this stage of the Reagan recovery, such purchases had risen by 11.6 percent; this time, they’re down by 2.6 percent.
I’m glad Krugman put the links to his blog posts in the online edition of the op-ed. You can pretty well figure out what Krugman will write about on Mondays and Fridays by reading his blog throughout the week. And the data tells the story in this case. Government employment and government purchases are way down, when in other recoveries they were way up. You’re talking about 1.3 million more Americans employed if we used the same strategies from the Reagan recovery.
That’s why we’re bound to the recovery we have. Probably the best thing we could have done for the economy over the past several years would have been to expand state fiscal transfers. Sure, they would have been called bailouts, but there was a compelling story to tell about saving the jobs of teachers and cops and firefighters, a case that the White House and Democrats in Congress never fully made. We got an edu-jobs bill in mid-2010, but the size was not nearly enough to stop the job losses. And as Krugman writes, when you scale back public education and investment, the practical effect of those job losses, that has far-reaching effects into the future.
Obviously the Congressional makeups have been different since 2011. And I really don’t want to re-litigate what could have been done during the 60-vote Senate interregnum, pre-Scott Brown, in 2009-2010 (though it should be mentioned that the Local Jobs for America Act, a direct boost to state and local spending, was sloshing around Congress at that time). But the road to a full recovery always drove right through state capitols and local government. Keeping them flush would have us in a far better position today.