In all kinds of ways — consumer demand, the federal deficit, even the weather — the medium-term future is highly uncertain. But this uncertainty, while the main problem, is not the only problem. We are also committing an unforced economic error. We’re cutting government at the same time that the private sector is cutting.
It is the classic mistake to make after a financial crisis. Hoover and even Roosevelt made a version of it in the 1930s. The Japanese made a version of it in the 1990s. Now we are making it.
Federal payrolls have been roughly flat for years (even as the population has been growing). But state and local payrolls grew over the last decade, by almost 20,000 jobs a month on average.
Since the crisis began and state and local taxes began plummeting, though, governments began to cut back. At first, the federal government stepped in, with the 2009 stimulus bill, and sent fiscal aid to states. Then the aid stopped.
In round numbers, state and local governments have cut about a half million jobs over the last two years. If they had continued to hire at their previous pace — expanding as the population expanded — they would have added about a half million jobs.
You already knew this, of course. We’ve been discussing it here for months. But it does illustrate just how purely ideological "austerity" really is. It’s clearly making things worse. But they’re going for more.
What ideology you ask? Why the ideology that Herbert Hoover’s Treasury Secretary Andrew Mellon espoused during the great Depression (well, except for the stocks part.)
Mr. Mellon had only one formula: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people” —
They are "wringing out excesses" and putting the people on a more moral footing in which they will work harder for less money and cease depending on government programs to be there when they get sick or can’t work. Some people call this having "skin in the game" and others call it "fiscal responsibility", but in the end, you cannot help but suspect that all this austerity is the ruling class’s way of preparing America for less affluence as globalization moves into the next phase — by making them grateful for having less. After all, suffering is supposed to be good for the soul. For the little people anyway.
And "enterprising people" (and heiresses and crooks) will pick up the wrecks from the less competent, so it’s not like you can’t get rich or anything. After all, anyone become a rock star or an NBA forward or a Master of the Universe if they just work hard enough.