Pethokoukis, Economics, U.S. Economy

Is austerity really hurting the US economy?

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Two takes on the same message:

The New York Times: “Economists See Deficit Emphasis as Impeding Recovery”

National Journal: “Who Says Fiscal Policy Is Hurting the Economy? (Almost) Everyone.”

1. This is a tale of two economies. The “G” in the GDP formula (government spending + personal consumption + private domestic investment + net exports) has detracted from measured economic growth in 10 of the past 11 quarters. But private sector growth has been much stronger, growing 4.0% in the first quarter and averaging 3.0% over the past two quarters — about what it did from 1983-2007.

2. And while the private sector has added 6.8 million jobs since the employment recovery began in early 2010, the public sector has lost just over 600,000 jobs. The public sector is in recession, the private sector is modestly growing — though the latter isn’t anywhere near its pre-recession trajectory whether measured by jobs or GDP growth.

3. According to a Hamilton Project study, government employment since 1970 increased by an average of 1.7 million following a recession. So if the US had followed the typical path, more than 2 million more Americans would be working, although not in jobs producing “consumer-relevant value,” as Tyler Cowen puts it.

4. According to the McKinsey Global Institute, the decline in business creation cost the economy two million jobs between the start of the Great Recession and the end of 2010. The number is undoubtedly much larger today.

So where should policy focus going forward? On boosting government spending and permanent government jobs? Or boosting entrepreneurs and private-sector jobs? Or both? Given future fiscal constraints, I would prefer as big a private sector as possible and as small a public sector as reasonably possible.

The New York Times piece quotes President Obama saying we need to make sure “that we’re investing in things like rebuilding our airports and our roads and our bridges, and investing in early childhood education, basic research — all the things that are going to help us grow.” But what about a business creation agenda? Do higher taxes and the health care law help or hinder?

34 thoughts on “Is austerity really hurting the US economy?

  1. I thought when the govt spent less that it was an incentive for the private sector…

    you know.. the whole idea of cutting taxes so the private sector can more wisely allocate resources?

    • Not when you saddle it with a multi-trillion dollar entitlement, and massive expansion of the regulatory state, dumbass.

      Larry, does your boat float when you pile your 350+ lb. frame into it, pack it full of lead weight anchors, and then try to inflate the cushions?

    • Larry, does the “G” in LarryG actually stand for Government, above?

      It would explain an awful lot about your economic ignorance.

      We will call you Larry Government henceforth.

  2. personal consumption expenditures are in part funded by unemployment benefits, social security & other govt pensions, medicare, medicaid et all…that all appears as “C” in GDP; they do not show up in the G component…

  3. The New York Times piece quotes President Obama saying we need to make sure “that we’re investing in things like rebuilding our airports and our roads and our bridges, and investing in early childhood education, basic research — all the things that are going to help us grow.”

    Amazing. You would think, given his green energy fiascoes, he’d be too embarrassed and ashamed at this point to be lecturing us about why we need to let him “invest” any more of our money for us.

  4. “4. According to the McKinsey Global Institute, the decline in business creation cost the economy two million jobs between the start of the Great Recession and the end of 2010.”

    Ok Jim, go to the next level: what is the cause of this disincentive?

    Fiscal policy, including tax and regulatory policy under this administration. The Obama Administration is openly business hostile and ignorant, except toward those whom they can control via political threats and patronage. That’s fascism.

    This isn’t rocket surgery.

  5. Get your heads of the sand. How comforting it must be to huddle up in your orgy and close your ears off to the world when faced with dozens of studies that contradict your blind ideology. You’ve been refuted. Open your eyes. Moody’s, the company you all trusted to operate unregulated in the wake of the Great Recession, has more more news for you. They woke up. It’s about time you did too. Patzers. http://www.nytimes.com/interactive/2013/05/09/us/fiscal-policies-take-a-toll.html?ref=us

    In case you’re still not convinced, perhaps Forbes has a thing or two to teach you about the failure of European austerity. http://www.forbes.com/sites/charleskadlec/2012/05/07/why-european-austerity-fails/

    Is this failure too inconvenient for you to remember?

    It’s people like you who refuse to look at the evidence that are continuing to suffocate our recovery.

    FYI, It’s called the Third Way — a blend of effective economic and political approaches. Clinton used it to great effect.

    Ideology is dead.

    • “Ideology is dead.”

      No it’s not. You just spouted some. Talk of the new “Third Way” is as old as the crust as your underwear(and as old as jokes about underwear crust.)

  6. You have it all wrong. It is gummint. Gummint and bidness.

    As in bidness suffers when $7 trillion in household wealth goes up in smoke. Can’t trust you supplysiders to get anything straight.

    • Step 1. Government creates a crisis.

      Step 2. Propose more government to “solve” problem.

      Step 3. Repeat.

      • So we’re back to the point where I challenge you to find one credible study by anyone not named Wallison or Pinto (AEI stooges) that says the govt is principally responsible for the housing crisis. I listed four or five studies saying Wall St did it in earlier threads. I have many more.

        • things like this have become an article of faith for the anti-govt types.

          it matters little what the truth is anymore because they’ll just shape it to fit their beliefs.

          AEI has become the “go to” guys for spinning up studies that support the narratives…

          I see their latest “study” on immigration costs even got some of their own birds of a feather in a snit.

          • “I see their latest “study” on immigration costs even got some of their own birds of a feather in a snit.”

            LOL, you’re such a f’ing moron, Larry. Heritage, not AEI, produced the shocking study that theorized the importing of low skilled poverty from Mexico was likely to be a net fiscal drain.

            Yeah, so farfetched, I know.

          • “it matters little what the truth is anymore because they’ll just shape it to fit their beliefs. “

            Exactly! Well said, Larry Govmint.

            The govmint is doing exactly that, right Lar? You were talking about the govmint, right Larry Govmint?

        • I listed 10, none of whom are named Wallison or Pinto.

          I challenge you to cite 1 not written by anyone from NPR or WaPo which credibly shows it was Wall Street’s fault.

          • Mesa, you say you have listed 10, which fact somehow escape me, never seeing one credible study linked by you. So, revisionism — or lie?

            Conservatives are hell on wheels when it comes to revisionism. Consider this blog post: http://rortybomb.wordpress.com/2010/09/30/charles-calomiris-on-high-ltv-then-and-now/

            Cliff notes: Under the banner of deregulation, Calomiris working for AEI in 1999, wrote that high loan-to-value mortgage lending represented the finest hour of government-free finance. Don’t try to follow the link in the blogpost, though, because AEI has — ahem — edited history. You’ll find his unexpurgated argument for subprime lending here: http://www.amazon.com/High-Loan-Value-Mortgage-Lending/dp/0844771252 “High Loan to Value Mortgage Loans: Problem or Cure?”

            (Save your money: he liked them.)

            The blog then links his 2010 opinion piece in the FT “Time to Introduce Minimum Downpayment Requirements for Mortgages.” Surprise! That link works.

            The blog goes on to ask what kind of mistake would get you fired from AEI. I think we know from the recent travails at Cato Institute: bucking the party line.

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