A New View of Austerity?

When it comes to things that bear repeating, thankfully there are bloggers to do the job. After all, if the point doesn’t communicate the first few times, only saturation will suffice. What? Okay, not exactly, but still, there are some things that shouldn’t require such repetition. To wit, Steve Benen:

When a nation tries to recover from an economic downturn, there are a variety of things policymakers have no control over. After the Great Recessions, for example, neither the White House nor Congress could control the Eurozone crisis, a natural disaster in Japan, or unrest in the Middle East.

It’s an unpredictable world with inter-connected economies and volatility often lurking just out of sight. But this realizations only reinforces a lesson congressional Republicans have forgotten: U.S. policymakers should, at a minimum, not make matters worse.

Consider, for example, what unemployment would be if government weren’t trying to create jobs and lay off public-sector workers at the same time.

He’s actually pointing to Phil Izzo’s blog post for The Wall Street Journal, which makes a point that ought to be familiar to all by now:

Federal, state and local governments have shed nearly 750,000 jobs since June 2009, according to the Labor Department‘s establishment survey of employers. No other sector comes close to those job losses over the same period. Construction is in second worst place, but its 225,000 cuts are less than a third of the government reductions. To be sure, construction and other sectors performed worse during the depths of the recession, but no area has had a worse recovery.

A separate tally of job losses looks even worse. According to the household survey, which is where the unemployment rate comes from, there are nearly 950,000 fewer people employed by the government than there were when the recovery started in mid-2009. If none of those people were counted as unemployed, the jobless rate would be 7.1%, compared with the 7.7% rate reported on Friday.

What’s that? Well, it’s one of those weird issues that stays in the background no matter how important it actually is, regardless of how often it is actually thrust into the spotlight.

Republicans and Jobs (part 2)

The Republican employment platform is a curious set of contradictions. In July, the Economic Policy Institute noted:

Two years after the official end of the Great Recession, the continued loss of public-sector jobs is an obstacle to reaching pre-recession employment levels. This decline in government employment is a historic anomaly; public-sector employment actually increased in the two years after official recoveries began in 10 of 11 post-World War II business cycles. The lone exception was in the early 1980s when the economy experienced a double-dip recession.

In total, the public sector has lost 430,000 jobs compared to the private sector’s net gain of 980,000 jobs since the Great Recession ended in June 2009 – an average of nearly 19,000 jobs each month over that time.

And Steve Benen explained:

Indeed, it’s important to remember that these job losses are, in the eyes of Republicans, a positive development. Under the GOP economic model, the public sector is supposed to lose jobs, and as part of the party’s austerity agenda, this is a problem that must get worse on purpose.

Earlier this year, for example, House Speaker John Boehner (R-Ohio) was asked about his spending-cut plans and the fact that the cuts would force thousands of public-sector workers from their jobs. “So be it,” the Republican said.

In other words, deliberately making unemployment worse wasn’t seen as a problem. This is a feature of the GOP model, not a bug.

Republicans and Jobs

Brief notes worth remembering:

Paul Krugman, shortly after the midterm election:

So what’s really motivating the G.O.P. attack on the Fed? Mr. Bernanke and his colleagues were clearly caught by surprise, but the budget expert Stan Collender predicted it all. Back in August, he warned Mr. Bernanke that “with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed.

Hence the axis of depression. No doubt some of Mr. Bernanke’s critics are motivated by sincere intellectual conviction, but the core reason for the attack on the Fed is self-interest, pure and simple. China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.

GOP stalwart Bruce Bartlett, a veteran of the Reagan and Poppy Bush administrations, as well as former aide to Reps. Jack Kemp and Ron Paul:

It is starting to look like 1937 all over again. As the table below indicates, the economy made a significant recovery after hitting bottom in 1932, when real gross domestic product fell 13 percent. The contraction moderated considerably in 1933, and in 1934 growth was robust, with real G.D.P. rising 11 percent. Growth was also strong in 1935 and 1936, which brought the unemployment rate down more than half from its peak and relieved the devastating deflation that was at the root of the economy’s problems.

By 1937, President Roosevelt and the Federal Reserve thought self-sustaining growth had been restored and began worrying about unwinding the fiscal and monetary stimulus, which they thought would become a drag on growth and a source of inflation. There was also a strong desire to return to normality, in both monetary and fiscal policy.

On the fiscal side, Roosevelt was under pressure from his Treasury secretary, Henry Morgenthau, to balance the budget. Like many conservatives today, Mr. Morgenthau worried obsessively about business confidence and was convinced that balancing the budget would be expansionary. In the words of the historian John Morton Blum, Mr. Morgenthau said he believed recovery “depended on the willingness of business to increase investments, and this in turn was a function of business confidence,” adding, “In his view only a balanced budget could sustain that confidence.”

Roosevelt ordered a very big cut in federal spending in early 1937, and it fell to $7.6 billion in 1937 and $6.8 billion in 1938 from $8.2 billion in 1936, a 17 percent reduction over two years.

At the same time, taxes increased sharply because of the introduction of the payroll tax. Federal revenues rose to $5.4 billion in 1937 and $6.7 billion in 1938, from $3.9 billion in 1936, an increase of 72 percent. As a consequence, the federal deficit fell from 5.5 percent of G.D.P. in 1936 to a mere 0.5 percent in 1938. The deficit was just $89 million in 1938.

At the same time, the Federal Reserve was alarmed by inflation rates that were high by historical standards, as well as by the large amount of reserves in the banking system, which could potentially fuel a further rise in inflation. Using powers recently granted by the Banking Act of 1935, the Fed doubled reserve requirements from August 1936 to May 1937. Higher reserve requirements restricted the amount of money banks could lend and caused them to tighten credit.

This combination of fiscal and monetary tightening – which conservatives advocate today – brought on a sharp recession beginning in May 1937 and ending in June 1938, according to the National Bureau of Economic Research. Real G.D.P. fell 3.4 percent in 1938, and the unemployment rate rose to 12.5 percent from 9.2 percent in 1937.

And then there is this, from John S. Irons of the Economic Policy Institute:

The agreement to raise the debt ceiling just announced by policymakers in Washington not only erodes funding for public investments and safety-net spending, but also misses an important opportunity to address the lack of jobs. The spending cuts in 2012 and the failure to continue two key supports to the economy (the payroll tax holiday and emergency unemployment benefits for the long term unemployed) could lead to roughly 1.8 million fewer jobs in 2012, relative to current budget policy.