Reports from the Economic Front

a blog by Marty Hart-Landsberg

The Austerity Agenda and Public Employment

While some austerity advocates really fear (although incorrectly) the consequences of deficit spending, the strongest proponents are actually only concerned with slashing government programs or the use of public employees to provide them.  In other words their aim is to weaken public programs and/or convert them into opportunities for private profit.

One measure of their success has been the steady decline in public employment.  Floyd Norris, writing in the New York Times notes:

For jobs, the past four years have been a wash.

The December jobs figures out today indicate that there were 725,000 more jobs in the private sector than at the end of 2008 — and 697,000 fewer government jobs. That works into a private-sector gain of 0.6 percent, and a government sector decline of 3.1 percent.

In total, the number of people with jobs is up by 28,000, or 0.02 percent.

How does that compare? It is by far the largest four-year decline in government employment since the 1944-48 term. That decline was caused by the end of World War II; this one was caused largely by budget limitations.

The chart below, taken from the same post also reveals just how weak private sector job creation has been over the past 12 years.

job changes

What follows is a screen shot of a graphic in a New York Times Business Day post.  It highlights just how significant the decline in public employment has been in this business cycle compared with past ones.  Each line shows the percentage change in public sector employment for specified months after the start of a recession.  Our recent recession began December 2007 and ended June 2009.   As you can see, what is happening now is far from usual.

job trends

It is also worth noting that despite claims that most Americans want to see cuts in major federal government programs, the survey data show the opposite.  For example, see the following graphic from Catherine Rampell’s blog post.

economix-22pewwhattocut-blog480

As Rampell explains:

In every category except for “aid to world’s needy,” more than half of the respondents wanted either to keep spending levels the same or to increase them. In the “aid to world’s needy” category, less than half wanted to cut spending.

Not surprisingly, this assault on government spending and employment will have real consequences for the economy and job creation.  Binyamin Appelbaum writes in the New York Times:

The federal government, the nation’s largest consumer and investor, is cutting back at a pace exceeded in the last half-century only by the military demobilizations after the Vietnam War and the cold war.

And the turn toward austerity is set to accelerate on Friday if the mandatory federal spending cuts known as sequestration start to take effect as scheduled. Those cuts would join an earlier round of deficit reduction measures passed in 2011 and the wind-down of wars in Iraq and Afghanistan that already have reduced the federal government’s contribution to the nation’s gross domestic product by almost 7 percent in the last two years. . . .

Over the last two years, federal consumption and investment declined by 6.9 percent. Including state and local consumption, a larger category that has declined more slowly, the inflation-adjusted reduction since 2011 was 4.9 percent.

But Alec Phillips, an economist at Goldman Sachs, estimated that federal consumption could fall by another 11 percent over the next two years. Mr. Phillips also noted that those earlier rounds of cuts in the 1970s and the 1990s came primarily from the military budget. The sequester is designed to be indiscriminate, cutting everything from air traffic control to nursery schools.

That could increase the resulting pain, because economic research suggests that military cuts are less painful than other kinds of spending reductions.

“It is cutting some of the best spending that government does,” Professor Cowen said of the cuts that would fall on the domestic side of the ledger.

All of this takes us back to the starting point–we are talking policy here.  Whose interests are served by these trends?

 

 

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