Wednesday, May 23, 2012

Cutting government jobs

Why does this matter? Because slashing government jobs does the same thing as slashing private jobs in a recession - it makes the recession worse by lowering demand.

It's the exact opposite of what we should be doing, since we need that demand in order to get private businesses hiring again.

Heck, we've known all this since the Great Depression of the 1930s. That's why government hiring has gone up during recessions under Republican presidents, even when they had Democratic Congresses to contend with.

Today's Republicans know it, too, but they don't want the economy to get better as long as there's a Democrat in the White House. They're willing to damage America and to harm American families in order to help their own political ambitions.

And they're faith-based, too, so they find it easy to believe whatever they want to believe (in this case, that the end justifies the means).


Tony Williams said...

I'm not sure that it's quite that simple, Bill.

As a result of the economic crash, a lot of governments have found themselves with a huge national debt, and (worse) running a massive deficit (i.e. annual expenditure way over income), which means that the debt is getting larger all the time. What this means is that an ever-larger proportion of government income is used up simply in paying the interest on the debt.

To make matters worse, if the financial markets believe that a government is not doing enough to tackle the problem, they'll push up the cost of borrowing which means that the interest payments on the debt go ever higher.

This is an ever-steepening downward spiral which has resulted in some EU countries paying around 7% annual interest on their debt. However, the UK is paying less than 2% - not because our economy is in any better shape (it isn't) but because the government is trying to cut back on the size of the debt, so the financial markets have some confidence in what they're doing.

In an ideal world, governments would balance their books and store up large financial reserves in the good times, which they could then spend in the bad times to maintain employment in the way that you suggest. Unfortunately, very few governments are that sensible - most politicians can't resist "buying" the electorate by spending everything they can, and then borrowing even more to spend as well, even in the good times. Which means economic disaster when the bad times arrive.

WCG said...

I can't speak for Europe, Tony, especially since the currency situation (with the Euro) makes the issue very complicated. But it's a different matter here - to some extent, at least.

The problem here was that the right-wing gave us record-breaking deficits even before the collapse. Due to tax cuts for the rich and two unfunded wars (for the first time in our history, we waged war without raising taxes to actually pay for it), we started in a deep, deep hole, even before the worst economic collapse since the Great Depression.

And yes, that limited what we could do. Nevertheless, America is having no trouble selling government bonds at very low interest rates. The dollar has even been strong. Eventually, the cost of borrowing would go up, but we're not at that point yet.

Furthermore, the best thing we could do to bring down the deficit would be to get people working again and get the economy moving again. Spending now to increase demand would prime the pump for that. Cutting spending in a recession is counter-productive, because it just keeps the economy in the toilet.

(Again, I can't speak for Europe, but austerity seems to be killing them. Certainly, Europe is holding back our own recovery. Of course, we gave them the collapse in the first place, so America can't really complain, huh? But European countries - like Greece - also made their own mistakes which have little to do with us.)

Being counter-productive is deliberate here, because Republicans know that an improving economy would help the Democrats. As Barack Obama noted, they've acted just the reverse when Republicans had the presidency. (But they wanted the economy to improve, then.)

I understand your point, Tony, but I think you're wrong, at least when it comes to America. It's not a matter of governments not being sensible. Democrats during the Clinton administration worked to keep the debt down, even starting to pay off the debt from previous Republican administrations. Not all governments are the same.

No, this has been a relatively-recent thing in America, partly the result of 'suppy-side' or 'trickle-down' economics - which has proven to be a complete failure - and partly from a deliberate attempt to bankrupt America, thus forcing a smaller government (the 'starve the beast' strategy of people like Grover Norquist).

Record-breaking deficits were the whole point for those people. That was their way of shrinking America's government until it was small enough to 'drown in a bathtub.' They wanted these deficits, and now they're using that excuse to slash spending on social programs (never on the military).

Before then, deficits increased, but not out of line with the growth in GDP. So I don't think we can look at the trends since the supply-siders got started (in the Reagan years) and call this inevitable. No, this was the result of a whole political party - a whole political ideology - being wrong.

We've had 30 years of this, and as it's failed, the faithful have just become more and more extreme. Well, they're faith-based, not evidence-based. But none of it is inevitable. Eventually, this will join other failed ideologies in the dustbin of history. Or so I hope.

Anonymous said...

Very interesting info!Perfect just what I was looking for!