In his latest column, Paul Krugman discusses a theme that we’re pretty fond of around these parts: The disconnect between the belief that the government has expanded wildly under Obama, and the reality, which is that government spending has fallen in a way that’s quite unusual for an economy trying to recover.
The key, of course, is that the fall in government spending is the result of state and local cuts, which people will say is not the result of any administration policies: And that may be true, but it doesn’t change the economics.
Start with government employment (which is mainly at the state and local level, with about half the jobs in education). By this stage in the Reagan recovery, government employment had risen by 3.1 per cent; this time around, it’s down by 2.7 per cent.
Next, look at government purchases of goods and services (as distinct from transfers to individuals, like unemployment benefits). Adjusted for inflation, by this stage of the Reagan recovery, such purchases had risen by 11.6 per cent; this time, they’re down by 2.6 per cent.
Krugman argues that if you assume government spending growth like Reagan had, you’d get another 1.3 million jobs, and an unemployment rate sub-7%.
Thus he concludes:
This policy malpractice is doing double damage to America. On one side, it’s helping lose the future — because that’s what happens when you neglect education and public investment. At the same time, it’s hurting us right now, by helping keep growth low and unemployment high.
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