Is economic growth grinding to a halt, even as pundits predicted better growth in 2014? Nonfarm payrolls have advanced just 188,000 over the past two months, when this was the average monthly increase in prior months. It does look like past austerity policies are still holding U.S. back.
As in Europe, the U.S. is seeing the results of four years of austerity policies in the January unemployment report. Total nonfarm payroll employment rose by just 113,000 nonfarm payroll jobs in January, instead of the 180-200,000 predicted by the pundits, and the unemployment rate was little changed at 6.6 percent, the U.S. Bureau of Labor Statistics reported today.
This follows the change in total nonfarm payroll employment for November, revised from +241,000 to +274,000, and the change for December was revised from +74,000 to +75,000. With these revisions, employment gains in November and December were 34,000 higher than previously reported. This is not a good report, needless to say.
Graph: Calculated Risk
So what could have been with the initial $831 billion American Recovery and Reinvestment Act that stopped the Great Recession from becoming another Great Depression, ended when government gridlock set in after the 2010 election. The banks were saved with $300 billion in TARP spending, but Main Street was left to fend for itself. Instead of more government stimulus, government spending was drastically cut when it came to stimulating job growth outside of Wall Street and the financial sector.
Instead, government employment in particular sank, losing some 700,000 jobs. And because so much government spending was cut, what followed was the most severe contraction in spending and investment since the 1930s.
The lessons from the New Deal were lost. When private investment and employment shrink, it's up to governments to spend more to create those jobs and public projects that employ the unemployed, as was done in the 1930s with the Works Progress Administration and CCC Corps.
Almost every community in the United States had a new park, bridge or school constructed by WPA. The WPA's initial appropriation in 1935 was for $4.9 billion (about 6.7 percent of the 1935 GDP), and in total it spent $13.4 billion. Between 1935 and 1943, the WPA provided almost eight million jobs.
The 6.7 percent of today's GDP would equal some $1 trillion, and it doesn't take much to imagine what 8 million additional jobs would do to stimulate growth today, instead of the 700,000 government, or government-financed jobs lost.
During the course of the Great Recession, about 7.5 million jobs were lost in the nonfarm business sector. Job losses did not end until February 2010, by which point total jobs lost stood at about 8.7 million. Since then and after four years of growth in the aggregate economy, employment recovered by some 6 million, still short of the sharp decline we experienced.
Debt never become a problem, even with WWII, because the additional growth that such programs stimulated more than paid down that debt. The preoccupation with debt that occurred after 2010 was because those Republicans and conservative Democrats that supported the huge Bush/Cheney deficits during their 8-year term would no longer support such spending. Conservatives now opposed anything that smacked of government aid.
The unemployed were suddenly lazy bums, and it was the middle class who foolishly created the housing bubble by buying homes with overinflated prices. (So they now had to pay the piper.)
It's that kind of attitude that creates gridlock, of course. This is not how to recover an economy -- especially when everyone but the top 1 percent now has to pay the piper.
Harlan Green © 2014