Economix: The Cost of Austerity

The main problem with the job market is the lack of hiring by private employers. Above all, they aren’t sure what the future will bring.

DAVID LEONHARDT

Thoughts on the economic scene.

Financial crises have long hangovers, and this one is no exception. Home sales and car sales remain depressed, nowhere near their earlier peaks, even though the population has continued growing. Europe still has the potential to upset global financial markets. If Congress doesn’t act on the debt ceiling soon, so does the United States.

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.

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.

Bureau of Labor Statistics, via Haver Analytics

Article source: http://feeds.nytimes.com/click.phdo?i=93f1ecaa2a65b4524b1960d0a033287b