Last Call

David Leonhardt explores the steep cost of austerity hysteria to our economy.

In all kinds of ways — consumer demand, the federal deficit, even the weather — the medium-term future is highly uncertain. But this uncertainty, while the main problem, is not the only problem. We are also committing an unforced economic error. We’re cutting government at the same time that the private sector is cutting.

It is the classic mistake to make after a financial crisis. Hoover and even Roosevelt made a version of it in the 1930s. The Japanese made a version of it in the 1990s. Now we are making it.

Federal payrolls have been roughly flat for years (even as the population has been growing). But state and local payrolls grew over the last decade, by almost 20,000 jobs a month on average.

Since the crisis began and state and local taxes began plummeting, though, governments began to cut back. At first, the federal government stepped in, with the 2009 stimulus bill, and sent fiscal aid to states. Then the aid stopped.

In round numbers, state and local governments have cut about a half million jobs over the last two years. If they had continued to hire at their previous pace — expanding as the population expanded — they would have added about a half million jobs.

Oh, that's not the bad part.  This is.

Source: Bureau of Labor Statistics, via Haver Analytics

In other words, the state and local austerity of the last two years has cost the economy about one million jobs.

And best case scenario the jobs that are replacing these government jobs:  teachers, firefighters, cops, etc, pay far less.  But this is exactly what state and local Republican party officials told us needed to happen.  We had to "trim the fat".  We had to "get rid of people making money off the government dime".  We were told that if we did this, the private sector would hire them.

And so we did, slashing jobs and putting these employees on unemployment and early retirement, and the private sector?  Well, let's just say they haven't added a million equally-paying private sector jobs yet.  Surprise!  The private sector is sitting on their cash waiting, or sending job overseas because that's where the demand for their products is growing.  The middle-class?  Certainly not growing in America, nope.

Once again, we're doing exactly what the Republicans say we should have done, and lo and behold, it's making the economy worse.  Shocker.  Republicans don't know a damn thing about economics.  But they're the party of fiscal responsibility, alright.