In States of Depression he explains, in detail, why the recovery is not stronger, including providing specific comparison with the recovery on Reagan's watch. The biggest single drag on the economic recovery is state and local governments cutting back on their employment, something that falls especially heavily on my profession, teaching. AS Krugman puts it rather bluntly near the beginning of his column,
one significant factor in our continuing economic weakness is the fact that government in America is doing exactly what both theory and history say it shouldn’t: slashing spending in the face of a depressed economy.
Some of this of course is because the sources of revenue for state and local governments remain significantly depressed as a result of the collapse of the financial services industry and of the value of housing. It is worth remembering that local governments are heavily dependent upon taxes on real property, and state governments upon income and sales taxes. All of these sources remain depressed, so states and localities, which by law/state constitution almost always have to run balanced budgets, have been making cuts to employment and purchases.
These state and local cuts have led to a sharp fall in both government employment and government spending on goods and services, exerting a powerful drag on the economy as a whole.
Let me quote Krugman's remarks on the comparisons between our time and the Reagan recovery that began in 1982:
By this stage in the Reagan recovery, government employment had risen by 3.1 percent; this time around, it’s down by 2.7 percent.
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 percent; this time, they’re down by 2.6 percent.
And the gap persists even when you do include transfers, some of which have stayed high precisely because unemployment is still so high. Adjusted for inflation, Reagan-era spending rose 10.2 percent in the first 10 quarters of recovery, Obama-era spending only 2.6 percent.
Please keep reading.
The problems state and local governments face can only be addressed by help from the federal government, which has unlimited borrowing power, and currently can do so at relatively low rates.
It could have been worse. The crisis for the lower levels of government began in 2008. Some of the immediate damage was alleviated first by ARRA (the stimulus), about which Krugman noted at the time was far too small to turn the economy around. The $10 billion in assistance for employment (especially of teachers) helped some, but because it required offsets in order to abide by Congressional budgetary rules it has less impact that in might otherwise have had. In today's column Krugman says of the total assistance offered the lower levels of government that it
was never provided on a remotely adequate scale.
The impact is serious, helping depress the rate of growth while keeping unemployment unnecessarily high. The result?
We’re talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.
And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent — significantly better than the Reagan economy at this stage.
Enough quoting from Krugman for now. Read the piece. Pass it around.
I see the results of this first hand. As a teacher, I have not had a step increase or a cost of living in three years. I have for two years lost stipends of 7,000 for each year. At the same time the cost of my share of the pension has gone from 5% to 7%, and my share of health insurance is up some 25%.
But at least I am still employed. Our school system has lost around 15% of its employees, although the drop in our student population is much, much lower.
What I am seeing in our school system is happening all across the country.
It is happening to police and fire.
Public libraries, important for those of limited means, are cutting back their hours and closing branches, or in some cases being completely shut down.
Local and state governments are in serious crisis. This goes even beyond the shock doctrine tactics of the likes of certain midwestern governors, who are attempting to destroy public employee unions, and to privatize as much of the commons as they can.
What I do not understand is why the administration and Democrats in general are not forcefully making the argument that the rich should be paying their fair share of taxes so that the rest of us are not losing essential services, like police, fire, and most of all public education. Perhaps it is because this administration is using a form of shock doctrine of its own to ram a flawed and destructive vision of how to "reform" public schools - think first of the lure of the funds of Race to the Top, and now the waivers being offered for No Child Left Behind's destructive approach to evaluation of schools through Adequate Yearly Progress.
Let me be as blunt as it Krugman. He concludes his piece by forcefully arguing that
we can take a big step toward full employment just by using the federal government’s low borrowing costs to help state and local governments rehire the schoolteachers and police officers they laid off, while restarting the road repair and improvement projects they canceled or put on hold.
That's a start. If we don't do something quickly to help state and local governments the damage to the services they provide will be long-lasting. You cannot improve the quality of public education to those most in need by cutting back on teaching jobs, increasing class sizes, not providing the necessary technology and up to date instructional material. If we do not address the serious crises faced by state and local governments, we will continue to see a continued destruction of the services and institutions that have the best chance of providing a future for so many of our people. Remember, we already have over 20% of our public school children living in poverty (compared to less than 3% in top-rated Finland). These children need MORE from our public institutions, but instead we are cutting back on what we provide them.
We have very little time left to save this nation as a liberal democracy.
We are in danger of losing public education for good, in part because of economics, in part because of destructively wrong-headed policies.
Nothing else will matter if we cannot educate our young people for the lives they will need to live in the future.
READ THE KRUGMAN PIECE. PASS IT ON.
Thanks.