In conversations and debates around the recent deceleration in job growth, when I've pointed out that we here in the U.S. have our own austerity programs going, I'm often met with disbelief. After all, we've got these huge federal budget deficits, right?!
Right, but what matters in terms of foot-on-the-accelerator is the change in the budget deficit, and the fact is we've been letting up right as the economy appears to have a slowed a bit. Add state fiscal drag and the growing unemployment insurance cuts and you get the picture.
On the first point, the figure compares the budget deficit so far this fiscal year with the one from the same months of last FY. Last year's was $150 billion more negative. Annualized, that's enough to drive the unemployment rate a half-point higher than it would otherwise be.
Then there are all the state job losses, which are also keeping the unemployment rate elevated, as I show here.
Finally, as my CBPP colleague and unemployment insurance expert Hannah Shaw points out, over 400,000 long-term unemployed persons in 25 high-unemployment states have lost UI benefits so far this year as the extended benefits program is ending in states across the land.
Just look at those unemployment rates in the table below -- 10.9% in CA, 9.1% in IL, 8.8% in MI, 9.9% in NC. These are areas where labor demand is still way below the level needed to provide anything like a welcoming job market. Yet we're kicking folks off the roles.
So, next time someone asks you for whom the austerity bell tolls, tell them it ain't just the EU.
This post originally appeared at Jared Bernstein's On The Economy blog.
Follow Jared Bernstein on Twitter: www.twitter.com/@econjared
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Kai
OK, we've been waiting for THREE YEARS, where is it?? Companies are sitting on RECORD piles of cash and generating record profits, and yet the ""autonomous real private sector growth" remains anemic at best. So what gives?
Production not consumption creates value and drives a country’s growth. We have been living through a series of bubbles that have kept consumption above sustainable levels, through easy monetary policies. We need to let the markets fall, and work of a real economic floor with as little market distorting regulations and government price manipulations as possible.
Government should not be in the economic growth or employment business, it should be in the protection of property rights, liberty, and equality under the law with laws and regulations that apply to all equally or to no one at all. Let the markets do the rest, namely create economic growth and employment
That is not the case now.
Kai
You state, ‘I agree that our corporate tax rates and overall structure are somewhat out of whack (though the effective tax rate that US corps pay is not really that out of whack with the rest of the world)…’
Our corporate effective tax rate is about 27%, which puts us in the top 1/3rd of the OECD…not great but not ruinous. However, given that we also tax capital gains and dividend taxes we have to add that also in to get to what our full integrated tax burden is. It equates to about 50.8% of corporate profit. This puts us 4th globally (behind France Denmark and the UK) but we will move to first next year when the Bush tax cuts expire.
http://www.theasi.org/assets/EY_ASI_Dividend_and_Capital_Gains_International_Comparison_Report_2012-02-03.pdf
Add in the fact that the US taxes globally while most of the OECD taxes territorially and no we are sadly uncompetitive. German companies remit their overseas profit back at a tax of 1.2%, the average in Europe is between 0 and 2%. Ours is a top up to 35% +4% (state), with average tax rates overseas in the 24%, that means we remit back and tax at about 15% in addition to the 24% paid overseas. No wonder companies just roll over investment back into overseas ventures.
However, the real question is, where is the "austerity?" Which nation is spending less money than before the recession? You can hop over to the IMF databases on government spending and pull up the G-7 (http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx). Nobody is spending less money, so where's the "austerity?" Nations are winding down their dedicated stimulus programs after half a decade of less-than-projected performance. Nevertheless, they are still spending more money year after year (even accounting for inflation). That's not austerity under any meaningful definition of the word.
There are only two possibilities: either Mr. Bernstein and his ilk are woefully misinformed, of they have substituted "austerity" for "reduced spending on programs we think are important." If it's the former, that's merely bad journalism; if it's the latter, that's twisting the truth. Neither answer is flattering to the author.
I also don't see why you think that austerity causes bond markets to bid up - that ins't obvious. Bond markets bid up prices when they perceive greater risk; depending on a country's fiscal situation, that could be when their debt/GDP ratio goes through the roof due to deficit spending just as easily as concern about lack of growth.
I'm really not sure what your point is or how it relates to my comment.
so with the federal government adding trillions upon trillons to the national debt, how can UI continue forever. Our federal government is going to be the next Greece.
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At least the nation gets something for its defense spending. Depite claims to the contrary, spending more money on unemployment benefits hasn't lifted the economy.