The Giant Sucking Sound Of Government Jobs

Public Sector Jobs

Derek Thompson explains a key element of our jobless recovery – the public sector’s “unprecedentedly bad post-crash performance”:

The public sector collapse was not Obama’s plan. It is not his fault, really. It is scarcely his responsibility, since the vast majority of government jobs — and of government jobs lost — have been at the state and local level. The recession devastated state tax revenue, and states cannot borrow from international lenders like Washington. So most had no choice but to cut workers. The stimulus delayed, but did not indefinitely defer, the blood-letting. And, since Congress refused to extend support even as interest rates clung to historically low levels, it’s been brutal.

If we held government employment perfectly steady since Day One of Obama’s presidency — not one more government job, nor one less — job creation would have seen a 25 percent boost. Instead, Obama’s legacy will include an historically strange post-recession collapse in government unemployment — and a powerful lesson in the limits of presidential power.

Update from a reader:

Derek Thompson’s post about the recovery is correct to note that the plummet in government jobs largely explains the lackluster recovery, and for that piece of information it is really Bill McBride at Calculated Risk who should be thanked. But when Mr Thompson says “The recession devastated state tax revenue, and states cannot borrow from international lenders like Washington. So most had no choice but to cut workers,” he makes a series of errors and gross misrepresentations.

States can and do borrow from foreign sources in exactly the same way the Federal government does, which is by selling their bonds to foreign buyers. Not only was Mr Thompson wrong about that, but he implies that Federal borrowing is that Federal borrowing comes from a “lender,” which makes it sound like going to a bank for a mortgage. But that is not right. The “borrowed” money comes from bond buyers.

What States generally cannot do is engage in deficit spending. They have balanced budget laws to follow. States also cannot print money or engage in quantitative easing. These are all things that the Federal government can do. Mr Thompson gets this all wrong.

And then there is Mr Thompson’s most pernicious error. He claims that Federal “borrowing” comes from foreign “lenders,” and that is a damnable misrepresentation. Most US Treasury Bonds are held by US citizens and US-based financial entities. The debt we owe is largely to ourselves.

Getting all of this right is crucial for understanding how and why the implementation of austerity and campaigns demanding austerity (like Simpson-Bowles) have been so damaging to the economy during the recession and nascent recovery.