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Wednesday, February 01, 2006

Did Budget Deficits Cause Most Recent Employment Growth?

The Economic Policy Institute looks at how much of recent job growth is attributable to the traditional Keynesian deficit spending channel, and how much is from supply-side effects induced by tax cuts. The study concludes that "federal spending—not tax cuts—are responsible for the jobs created in the past five years."

Economic Snapshots, EPI, Sluggish private job growth indicates failure of tax cuts: Changes in tax law since 2001 reduced federal government revenue by $870 billion through September 2005.  Supporters of these tax cuts have touted them as great contributors to growth in jobs and pay. But, in reality, ... a closer look at the new jobs created shows that federal spending—not tax cuts—are responsible for the jobs created in the past five years. If tax cuts have created jobs at all since 2001, it will have happened in the private sector. Assuming that job growth in 2006 matches the Bush Administration's projections, the economy will have added about 2.0 million jobs to the private sector from FY2001 through FY2006. But how many of these two million jobs actually can be attributed to tax cuts and how many to increased government spending—particularly increased defense spending—in this period?


Based on Defense Department estimates of the number of private-sector jobs created by its own spending, we project that additional defense spending will account for a 1.495 million gain in private sector jobs between FY2001 and FY2006.  Furthermore, increases in non-defense discretionary spending since 2001 will have added yet another 1.325 million jobs in the private sector, for a total of 2.82 million jobs created by increased government spending. Increased mandatory government spending ... would account for even more job creation. The mere fact that the projected job growth resulting from increased defense and other government spending exceeds the actual number of jobs projected to be added to the economy through 2006 clearly indicates that the tax cuts hardly seem plausible as the engine of the modest job growth in the economy since 2001. MaxSpeak has more. [Note: Not the original figure].

    Posted by on Wednesday, February 1, 2006 at 12:06 AM in Economics, Unemployment | Permalink  TrackBack (0)  Comments (5)


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