The Economy Continues to Pay the Price for Austerity

The recent budget negotiations in Congress are a reminder that policymakers can actively slow (or if they choose, speed up) recovery by depressing (or increasing) demand. As the budget talks continue, it is important to remember that more stimulus, not austerity, would have aided in the labor market recovery, and would still be a powerful way to grow the economy.

Austerity at all levels of government continues to be a drag on the economy. The effects of austerity are widespread. Cuts to safety net programs (like SNAP), for instance, not only hurt families, but also decrease demand which would spur on job growth. One clear, direct effect, meanwhile,is the lack of public sector jobs, particularly at the local level—think teachers.

As shown in the figure below, public sector jobs are still nearly half a million down from where they were before the recession began. And, this fails to account for the fact that we would have expected these jobs to grow with the population—taking that into consideration, the economy is short 1.8 million public sector jobs. This shortfall in jobs in turn removes the multiplier effect on private sector demand, snowballing into an even slower recovery.