Jeff Gelles: Austerity will do nothing to fix the real problem: Jobs

A too-familiar scene still: Applicants filling out forms at a jobs fair in Newark, N.J. MARK LENNIHAN / Associated Press
A too-familiar scene still: Applicants filling out forms at a jobs fair in Newark, N.J. MARK LENNIHAN / Associated Press
Posted: March 04, 2013

Swarthmore College economist Mark Kuperberg calls it the "austerity pandemic." It seems to spread from person to person and even continent to continent, like some bizarre zombie malady passed along by politicians and pundits via cable or satellite TV.

The U.S. strain has one key symptom: a misguided obsession with a real but long-term problem - the nation's debt - that threatens to worsen an immediate crisis already harming millions of Americans each day.

More than four years after 2008's collapse, we're still struggling to recover from the slump it triggered. About 12.3 million Americans are looking for work - one-third of them jobless for more than half a year and at risk of what economists call "long-term scarring": a lifetime of lessened prospects and reduced earnings.

Here's another way to look at the crisis' magnitude: If today's 7.9 percent unemployment rate were closer to 5 percent, four million more Americans would be earning paychecks, not worrying about cuts in jobless aid.

So how are we coping? You guessed it: by cutting aid to the long-term unemployed, along with medical research; nutritional assistance to pregnant women, infants, and children; Meals on Wheels for the elderly, and a host of other domestic programs, along with similarly indiscriminate cuts in military spending. All told, the new cuts are expected to push an additional 750,000 people onto the unemployment rolls.

All are a consequence of the so-called sequester, automatic spending cuts that were never supposed to actually happen even though 2011's Budget Control Act set them in place. This year's $85 billion in domestic and defense cuts aimed to be so painful that the parties would be forced to strike a new deal to replace them.

I'll let others discuss the strange politics that have left President Obama nearly pleading for a "balanced approach" to a compromise. On Friday, he again dangled the GOP's favorite goal, "entitlement reform," as an inducement, saying he was willing to "do some things that my own party really doesn't like if it's part of a broader package of sensible deficit reduction."

Like many economists, Kuperberg expects damage but not disaster if this year's cuts aren't undone and shave half a percentage point or more off gross domestic product. But Kuperberg is adamant that the cuts are unwise - a reflection on the austerity pandemic he worries has spread from Europe to the United States.

Results in Europe, which also faced a currency crisis after the 2008 collapse, should spook any honest austerian. Britain has suffered a double-dip recession. Spain's 26 percent jobless tops the U.S. rate in the Great Depression's depths.

Thankfully, the United States will never face the complications of the eurozone's currency-related concerns. Unless we simply refuse to pay - as the GOP basically threatened in 2011 - a country that issues its own money never faces a real risk of default.

But that hasn't immunized us from demands for austerity. Kuperberg suspects it's become a contagious ideology because economics, always dense and often counterintuitive, is easily infected by a strain of misplaced moralism. How often have you heard a politician - including Obama himself - suggest that government needs to do what families do and "tighten its belt"?

"People think that if it's the right thing for an individual to do, it's the right thing for the government," Kuperberg says. But as generations of economists learned from dissecting the Great Depression, that's not always true.

"Over the long run, increased savings is a good thing. But in the short run, in a depressed economy, it's a bad thing," Kuperberg says.

Last week, no less an authority than Ben Bernanke weighed in with a similar warning that "sharp, frontloaded spending cuts" could be counterproductive by slowing the pace of recovery.

Since the financial crisis, the Fed has done all it can, with a pedal-to-the-metal policy of keeping short-term interest rates near zero. Coupled with 2009's stimulus, the Fed kept a historic downturn from becoming a second Great Depression.

But Kuperberg recalls how ill-advised budget cuts in 1937 sparked another dip in a still-depressed economy, evidence that ill-timed government thrift can be deeply counterproductive.

Incredibly, we seem bent on making one of the same mistakes again. And the real crisis - damaging unemployment - will just get worse.


Contact Jeff Gelles at 215-854-2776 or jgelles@phillynews.com.

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