Our guest blogger is Adam Hersh, an economist at the Center for American Progress Action Fund.
Today’s news on the state of the US labor market is, in a word, miserable. But the persistent high level of unemployment and ebbing job creation we see in the headline numbers could be much better if policymakers stopped following the siren song of government austerity.
Since April 2009, government at all levels of the United States have shed 706,000 jobs and cuts in real government consumption and investment — that is, buying goods and services from the private sector — lopped $114 billion off the size of the U.S. economy since the American Recovery and Reinvestment Act and other policies wound down in the summer of 2010. That austerity, combined with the slumping international economy thanks to other austere governments around the world, is dragging down our economy and the jobs that it fuels.
But what if we hadn’t cut those jobs providing critical public services and investments? Under President Reagan, rather than shedding public service jobs, governments added more than 1.4 million jobs — or twice as many government jobs as have been cut in the current economy — by the time he left office. And rather than cutting government purchases from the private sector, government actually expanded by $410 billion under President Reagan.
Note that both the population and the economy of the United States were significantly smaller back then, so these stimuli under President Reagan were much larger in relative terms than what we are seeing today. If government jobs continued growing at the same rate as during Reagan’s presidency, today government employment would be 1.05 million jobs larger.
If we had only not lost those public service jobs, the unemployment rate would be 7.2 percent instead of 8.2 percent in May 2012. And that’s not even counting the many more private sector jobs that would be created through the “multiplier effect” — jobs and activity in one part of the economy fuel more jobs and activity elsewhere in the economy. In this case, these phantom government jobs would have fueled private sector businesses and employment that relied on consumption from the incomes of public service workers, public investments, and the public consumption from routine operation of government.