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Sunday, February 10, 2013

'The Austerity is Real'

Ryan Avent:

The austerity is real, by Ryan Avent: Tyler Cowen is quick to link to pieces calling into question the extent to which austerity plans have been austere. Here is the latest example. He quotes a Washington Post story...
But if this is so, then why is a bank like Goldman Sachs, which has little incentive as far as I can tell to stumble dumbly into rah-rah Keynesianism, warning of an ongoing, significant decline in federal government spending? ...... [T]he ... "austerity" of 2011-2012 wasn't "austerity" but austerity. Federal government spending fell by a meaningful share of GDP over that period. So did federal government employment, which dropped by 31,000 jobs in 2011 and 45,000 jobs in 2012. What's more, we have good reason to believe that these cuts entailed positive multipliers above those we'd observe in normal times. You don't have to take the IMF's word for it; even stimulus skeptics like Valerie Ramey find that multipliers may sometimes be above normal, and above one, during periods of economic slack.
The cuts may amount to less than initial rhetoric suggested (and who is surprised!). They may not "hurt" in the way small-government types would wish them to hurt, in that meaningful reductions in the resources available to state interests or state-dependent interests have not come to much. But that does not mean that spending hasn't fallen, by a significant amount, with clear impacts for the macroeconomy and those within it who would like to be working but aren't.

I wish I could cheer -- yahoo!!!, the government didn't enact policies that slow the recovery and result in higher unemployment after all. But I just don't think that's true. We do need to tame the debt in the long-run (mainly health care costs!), but the zeal to solve this problem now, when it hurts the economy much more than it would if we were closer to full employment, is puzzling. I get where some people are coming from on this issue, but I don't understand how they can be so indifferent to the struggles of people who just want a decent job but can't find one no matter how hard they try. Jobs, and the long-run harm that comes from high unemployment ought to be our main concern right now.

    Posted by on Sunday, February 10, 2013 at 10:03 AM in Budget Deficit, Economics, Fiscal Policy | Permalink  Comments (40)


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