FacebookTwitterGoogle+RedditEmail

Austerity Does Not Grow the Economy

by DEAN BAKER

The Federal Reserve Board issued new projections for the economy last week, and they are not pretty. It projects the unemployment rate will still be 8.2 percent at the end of this year, 7.4 percent at the end of 2013, and 6.7 percent at the end of 2014. To put this in context, the unemployment rate peaked at 7.6 percent in the 1990-91 recession and never got above 6.3 percent in the 2001 recession. The Fed is projecting that seven years after the onset of the current recession, the unemployment rate will still be higher than at any point in the last recession.

This should have people alarmed and angry since it means that millions of lives will be ruined. Workers who are unable to find jobs will not be able to support families, contributing to stress and breakups.

The reason the economy is not creating jobs is simply that there is no source of demand to replace the demand created by the housing bubble. With nothing to replace this lost demand, companies see little reason to expand production and hiring.

Government spending is an obvious source of demand. However this spigot has been closed due to concerns over deficits. We have thousands of people in Washington who seem convinced that if the government would just stop spending money and lay off more employees then the private sector would respond with increased output and hiring.

While this might seem implausible on its face (what business hires people because the government has laid off school teachers or firefighters?), we no longer have to speculate about the impact of budget cuts and government layoffs, the United Kingdom is showing us.

The government elected last spring in the United Kingdom committed itself to rapidly reducing the size of its deficit. This government austerity was supposed to give a big boost to the private sector. It actually did the opposite. Growth has fallen to a near standstill. The IMF projects that the U.K. economy will grow by just 0.6 percent this year and an only slighter better 1.6 percent in 2013. This pace is not even fast enough to keep up with the growth of the U.K.’s labor market.

It would be good if the politicians in Washington could learn these basic facts about the British economy. They might then realize that deficit reduction destroys jobs, it doesn’t create them. There are times when we should be worried about the size of the deficit, but this is not one of them.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of False Profits: Recovering from the Bubble Economy.

This article originally appeared in Economic Intelligence.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
March 24, 2017
Friday - Sunday
Michael Hudson
Trump is Obama’s Legacy: Will this Break up the Democratic Party?
Eric Draitser
Donald Trump and the Triumph of White Identity Politics
Jeffrey St. Clair
Roaming Charges: Nothing Was Delivered
Paul Buhle
The CIA and the Intellectuals…Again
Andrew Levine
Ryan’s Choice
John Wight
London and the Dreary Ritual of Terrorist Attacks
Joshua Frank
Global Coal in Freefall, Tar Sands Development Drying Up
Anthony DiMaggio
Ditching the “Deep State”: The Rise of a New Conspiracy Theory in American Politics
Vijay Prashad
Inventing Enemies
David Rosen
Why Did Trump Target Transgender Youth?
Bill Willers
Volunteerism; Charisma; the Ivy League Stranglehold: a Very Brief Trilogy
Lawrence Davidson
Moral Failure at the UN
Pete Dolack
World Bank Declares Itself Above the Law
Nicola Perugini - Neve Gordon
Israel’s Human Rights Spies
Ralph Nader
Reason and Justice Address Realities
Ramzy Baroud
‘Decolonizing the Mind’: Using Hollywood Celebrities to Validate Islam
Colin Todhunter
Monsanto in India: The Sacred and the Profane
Louisa Willcox
Grizzlies Under the Endangered Species Act: How Have They Fared?
Norman Pollack
Militarization of American Fascism: Trump the Usurper
Pepe Escobar
North Korea: The Real Serious Options on the Table
Brian Cloughley
“These Things Are Done”: Eavesdropping on Trump
Carol Wolman
Trump vs the People: a Psychiatrist’s Analysis
Farhang Jahanpour
America’s Woes, Europe’s Responsibilities
Joseph Natoli
March Madness Outside the Basketball Court
Bruce Mastron
Slaughtered Arabs Don’t Count
Ayesha Khan
The Headscarf is Not an Islamic Compulsion
Ron Jacobs
Music is Love, Music is Politics
Christopher Brauchli
Prisoners as Captive Customers
M. Shadee Malaklou
An Open Letter to Duke University’s Class of 2007, About Your Open Letter to Stephen Miller
Robert Koehler
The Mosque That Disappeared
Barbara Nimri Aziz
The Gig Economy: Which Side Are You On?
Kollibri terre Sonnenblume
Marines to Kill Desert Tortoises
Charles R. Larson
Review: David Bellos’s “Novel of the Century: the Extraordinary Adventure of Les Misérables”
March 23, 2017
Chip Gibbons
Crusader-in-Chief: the Strange Rehabilitation of George W. Bush
Michael J. Sainato
Cybersecurity Firm That Attributed DNC Hacks to Russia May Have Fabricated Russia Hacking in Ukraine
Chuck Collins
Underwater Nation: As the Rich Thrive, the Rest of Us Sink
CJ Hopkins
The United States of Cognitive Dissonance
Howard Lisnoff
BDS, Women’s Rights, Human Rights and the Failings of Security States
Mike Whitney
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate
John Wight
Martin McGuinness: Man of War who Fought for Peace in Ireland
Linn Washington Jr.
Ryancare Wreckage
Eileen Appelbaum
What We Learned From Just Two Pages of Trump’s Tax Returns
Mark Weisbrot
Ecuador’s Elections: Why National Sovereignty Matters
Thomas Knapp
It’s Time to End America’s Longest War
Chris Zinda
Aggregate Journalism at Salon
FacebookTwitterGoogle+RedditEmail