After this week's election results in France and Greece, press, pundits and politicians on both sides of the Atlantic are questioning the future of draconian austerity policies in Europe. As well they should. Euro-region unemployment has reached its highest levels in 15 years. Across the channel, David Cameron's Tories have led the UK back into recession, with joblessness there forecast to increase through 2016.
But while the U.S. economy under President Obama continues to outperform the austerians in Europe, American growth and employment numbers could have been much better. Better, that is, if steep cuts by state and local governments hadn't undone the indisputable job creation benefits of the federal stimulus. Thanks to intransigent Republican governors and their obstructionist GOP allies in Congress, the shrinking American public sector has slowed the recovery from the Bush recession and added a full point to the U.S. unemployment rate.
That's the word from Tuesday's Wall Street Journal, where Justin Lahart explained that the "unemployment rate without government cuts: 7.1%." While the Labor Department's establishment survey shows 586,000 government jobs at all levels have been lost since December 2008, the more volatile household survey of unemployment suggests the total might be much, much worse:
In the three months ended April, it shows that there were an average 20.3 million people engaged in government work, 1.2 million fewer than the average for the three months ended December 2008. That is more than double the job losses registered by the establishment survey.
The unemployment rate would be far lower if it hadn't been for those cuts: If there were as many people working in government as there were in December 2008, the unemployment rate in April would have been 7.1%, not 8.1%.
Back in March, Paul Krugman expressed the same point, but with some inconvenient historical context for the Party of Reagan. "In fact, if it weren't for this destructive fiscal austerity," Krugman explained, "Our unemployment rate would almost certainly be lower now than it was at a comparable stage of the 'Morning in America' recovery during the Reagan era."
We're talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.
And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent -- significantly better than the Reagan economy at this stage.
A month ago, the Economic Policy Institute (EPI) showed how much better with the chart above. Noting that the private sector had gained 2.8 million jobs while federal, state and local governments shed 584,000 just since June 2009, EPI concluded that the public sector job losses constituted "an unprecedented drag on the recovery":
"The current recovery is the only one that has seen public-sector losses over its first 31 months."
For the first time in 40 years, the government sector of the American economy has shrunk during the first three years of a presidential administration.
Spending by the federal government, adjusted for inflation, has risen at a slow rate under President Obama. But that increase has been more than offset by a fall in spending by state and local governments, which have been squeezed by weak tax receipts.
In the first quarter of this year, the real gross domestic product for the government -- including state and local governments as well as federal -- was 2 percent lower than it was three years earlier, when Barack Obama took office in early 2009.
To be sure, state and local governments were hit by a triple during the Bush recession that began in December 2007. Tax revenues plummeted even as demand for services including health care and unemployment benefits skyrocketed. While President Obama's American Recovery and Reinvestment Act (ARRA) helped fill some of the gaps in state and local budgets, that aid was largely finished by the end of FY 2011. Even though state tax receipts jumped by 8.9 percent last year, the Center on Budget and Policy Priorities reports that 30 states still face budget shortfalls in the coming year. Once inflation is factored in, state and local tax revenue has yet to reach pre-recession levels. The result will be continued government job losses in the states.
The budget axe fell and the ranks of former public sector employees grew across the country. But Republican policies have made the crisis worse than it needed to be. In states like Ohio, Michigan, Kansas, Oklahoma and Florida, GOP governors have already or are seeking to cut income and business taxes, often shifting the burden to lower income residents. The result, as The Nation documented, is a hemorrhage of jobs in red states:
Nearly all of the job losses took place at the state and local level, and they were most severe in a handful of GOP-controlled states. In other words, erosion of public sector employment isn't a problem affecting the entire country equally--it's a problem in particular states, thanks to very particular legislators. As the following chart shows, seven states laid off more than 2.5 percent of their own state and local workforce. Other states lost, on average, less than half a percent of their workforce.
Last fall, columnist George Will exulted that the public sector "happily shrank" and cheered "that's good." For his part, Senate Minority Leader Mitch McConnell (R-KY) called those layoffs a "local problem." And to ensure that local problem didn't become Washington's problem, McConnell's Republican friends in Congress didn't merely vote against the February 2009 stimulus bill. During his admitted debt ceiling hostage-taking last summer, McConnell explained, "I refuse to help Barack Obama get re-elected by marching Republicans into a position where we have co-ownership of a bad economy." And when President Obama rolled out his $447 billion American Jobs Act including new assistance to state and local governments, Republicans made it clear why they opposed a bill former McCain economic adviser Mark Zandi forecast that could create up to 1.9 million jobs and add two points to U.S. GDP:
"Obama is on the ropes; why do we appear ready to hand him a win?"
In response, a frustrated Obama couldn't only ask:
"Are they against putting teachers and police officers and firefighters back on the job? Are they against hiring construction workers to rebuild our roads and bridges and schools?"
In a word, yes. Even at a time of economic crisis when the government in America continues to shrink, Republicans from Mitt Romney and Paul Ryan on down remain the anti-stimulus.
(This piece also appears at Perrspectives.)