What Austerity Hath Wrought

By James Fallows

Some day people will look back in puzzlement at the prevailing U.S. mood of 2011, when in the face of the biggest job-loss collapse in two generations the prevailing rhetoric from Democrats and Republicans alike emphasized the need to cut public spending, now. (And, yes, it should have been seen as puzzling and self-destructive at the time.)

Much as we now look back in puzzlement at the prevailing U.S. rhetoric of 2002, with its gung-ho emphasis on the need to invade Iraq now. And the rhetoric of 2012, going on around us, with its off-hand discussion of the need to attack Iran any day now. Good for the new chairman of the Joint Chiefs of Staff, Gen. Martin Dempsey, for saying in public what National Security Advisor Tom Donilon has apparently been saying in private on his trip to Israel: that bombing Iran is in fact a risky, bad, and self-defeating idea, and that the Netanyahu team should not be under the illusion that the U.S. would welcome their doing so.

Austerity measures, in the middle of a collapsing private economy, make things worse, not better. This observation would be akin to "gravity pulls you down, not up" except that so many people seemed not to remember or believe it last year. (Viz: the whole debt ceiling train-wreck.)

Here's a visual aid, in keeping with repeated posts that the Atlantic's Derek Thompson has been doing on the subject. It comes from the Rockefeller Institute, which has documented trends in employment over the past few years. These lines show the changes in public and private employment since the collapse that began four years ago:

Rockefeller.png


Main point: for the past two years, private-sector employment has in fact been recovering. It fell by almost 8 percent from its pre-crisis peak, and it has now regained a little less than half of that loss. But during that same period of recovery, public-sector employment has headed downward. As the Rockefeller data suggests, the main "jobs, jobs, jobs" headwind for the economy now comes in the form of teachers, police and fire departments, and other state- and local-government employees. Of course in the long run any economy's health depends on robust private-sector employment. But during recovery from a recession, a job is a job is a job, with all the multiplier effects of families who either have, or lose, their paychecks -- not to mention the impact on school children, public safety, maintenance, and so on from the cutbacks.

Here is another chart from the report, covering employment in local schools systems. Main point: in previous recessions, school systems collectively hired more people as private employers were laying workers off. This time, school-systems have been laying people off too:

Rocekfeller2.png

Theme of both: in the short term you can't "austere" your way to fuller overall employment.

For some reason I don't yet see this release on the Rockefeller Institute's main site, so here is a link to the email form of the update I received today with supporting data and other elaborations. For another time, what it would take to deal with some of these episodes of mass policy irrationality before we have to look back at them in wonder.

This article available online at:

http://www.theatlantic.com/business/archive/2012/02/what-austerity-hath-wrought/253373/