Friday, April 6, 2012

Obama's Not-So-Big Government

As some of you econ nerds out there may already have heard, the jobs report for last month came in, and the news was not good by anyone's measure. 120,000 jobs were added (compared to 240,000 in February), and the unemployment rate fell to 8.2%. I grant that this might just be a blip on the radar from something like the recent spike in gas prices. At the same time, though, it reflects that we are still very much in an unemployment crisis, and that now is definitely not the time for complacency.

This jobs report made it quite clear that the recovery is probably not self-sustaining, as much as we might wish it to be so. So why is this recovery so devilishly hard to maintain? Well, you might find this hard to believe, but layoffs in the public sector (i.e. government jobs) are really a large part of what's holding us back. You're incredulous, I know. Barack Obama has presided over a massive increase in the deficit, and thus, in the size of government. He's replaced the job creation of businessmen with that of bureaucrats, right? Well, no, not quite, actually. Since the recovery began in June 2009, 584,000 public sector jobs at the federal, state, and local levels have been lost.

The thing is, the public sector has been slowly bleeding jobs since the middle of 2009, while the private sector has hired 3.9 million people since February 2010. However, the huge amount of debt the private sector (and homeowners) racked up is still being paid down, so private sector job creation isn't fast enough to fully counteract the government layoffs.

Why has this happened? Well, there are a few reasons. The first reason is that federal aid to state and local governments, which was provided as part of the Obama stimulus package, began to run out a bit over a year ago. When Republicans swept the 2010 midterms, there was no chance that more federal dollars would be appropriated, as Republicans refused to increase government spending. States and localities found that they had huge budget shortfalls. Since states can't run budget deficits nearly as easily as the federal government can (all but one have budget amendments), they were forced to balance their budgets.

When balancing your budget, you obviously have two options: cutting or taxing. States either couldn't or didn't raise taxes alone to completely cover their shortfalls for a variety of reasons. Anyways, since they can't raise a whole lot via taxes, the states were forced to make deep budget cuts. Obviously, you know what came next--the layoffs. States (and localities) were forced to shed thousands upon thousands of jobs.

The second source of public sector job loss was actually at the federal level. To begin with, the stimulus package was too small, so it didn't actually account for any appreciable rise in public employment. To make matters worse, the focus was taken off of job creation in Washington in 2010. This was especially true after the Republican victory in the 2010 midterm elections heralded in a newfound focus on our so-called debt crisis. The budget cuts started almost immediately: first with the showdown over the budget, which resulted in billions in cuts. Then, the debt ceiling agreement cut $1 trillion immediately, with another $1.2 trillion in cuts to follow in January of 2013 (not to mention the tax hikes). As a result, the government started shedding jobs at a steady pace.

So how does this situation stack up against recoveries from previous recessions? Well, let's take a look at public sector employment following the 1981, 1990, and 2001 recessions, when Reagan, Bush I, and Bush II were President, respectively.

The EPI says that if public sector job growth had been around what it had in these previous recoveries, we would have gained roughly 1.7 million jobs, instead of losing nearly 600,000. It's interesting, isn't it? Under all three Republican Presidents, government actually got bigger, while under Obama, it got smaller. That's not to say that Obama is right and they are wrong--I'd have liked to seen more public sector hiring--but it certainly calls into question a lot of the claims about government that Republicans like to throw around. Who knew Reagan was such a big-government guy?

The irony of it all would be funny if it wasn't so depressing.