Will the Austerity Spring Kill Off the Recovery Summer?
With an unemployment rate still over 7.5%, millions of Americans are looking for some small signs of hope that the job market is set to improve. The sad news is that there is no help to be found in the short term, and we have only ourselves to blame. Our national obsession with economic austerity has led to our jobless recovery, and we’re only going to end it by getting more aggressive about our economic problems. How did we get here? Washington was gripped last year with debt fever, the belief that excessive government spending is holding the economic recovery back. We’re now paying the price. In order to bring Congress and the White House together on a plan to better balance spending and revenue, we created a perfectly nightmarish alternative. The sequester, a trillion dollars in automatic budget cuts that was enacted in March, was never intended to be the basis for policy. Since Democrats didn’t want cuts to social programs, and Republicans didn’t want tax hikes, the sequester was intended to be the device that would make sure that the right deal got done: the political equivalent of castor oil. Unfortunately, the Republican obsession with cutting spending, regardless of the consequences, made a compromise impossible, and the fall-back plan became law.
Sequesterland is not a nice place to live. Republican politicians thought that cutting government spending would unleash private investment, and this in turn would reduce unemployment. US bond yields are just the same as they were before the sequester, so the lower government spending isn’t enabling firms to borrow money. Business confidence remains flat. While unemployment has fallen from its peak of 10%, long term unemployment is at historic levels, with the average unemployed American out of work for almost 40 weeks. Unemployment rates are highest among those a high school diploma or less; those with the lowest weekly earnings as a group are those on the very margins of our economy.
It is no surprise that public opinion is starting to turn against the sequester. In an ABC News/Washington Post poll conducted in March, 25% of the respondents reported that they personally had been affected by these cuts. In May, the percentage of respondents personally affected by the sequester rose to 37%. As federal agencies turn to furloughs in the coming weeks, this figure is certain to climb.
Fortunately a growing consensus of economic experts, including the International Monetary Fund and our own Federal Reserve argue that the road to recovery lies in more sensible fiscal policy. There are other voices in this chorus, to be sure – but when an independent international organization as well as other branches of the federal government both argue that Congress has put the country on the wrong course, it’s time to pay attention. The IMF recently noted that austerity has slowed economic growth to the tune of a percentage point and a half this year, and the sequester poses long-term problems by cutting spending in education and infrastructure.
None of these observers argue that governments should spend recklessly. On the contrary, they’ve called attention to what we’ve already done, which is reduce the budget deficit by 7% since 2009. The question they raise is one of priority. With the job market continuing to sputter, is more austerity better economic policy? Given that pulling government spending out of the economy has reduced our rate of growth, the answer to this is an emphatic no. It’s time to unwind the sequester and make more strategic decisions involving supporting worker training to upskill the labor force. Infrastructure problems aren’t going away, and aggressive spending can help resolve this crisis and put people back to work. Reinvigorating the WPA and the CCC from the Great Depression will also help those most in need find meaningful work while performing needed tasks in their respective communities.
It is time to reach out to our members of Congress and remind them that a nation in which millions of Americans are out of work is not good enough. We need to realize that we ended fiscal stimulus way too early in the interests of reducing debt. It’s time that we pay attention to real workers who are suffering. The economic crisis has taught us that growth is not a luxury reserved for Wall Street financiers, but something that everyone should be allowed to share in. Focusing on jobs is a good start.