Reprinted from Smirking Chimp
A new economic working paper reinforces an important reality: We need more government spending to repair the economy for millions of working Americans. Unfortunately, our political debate is being held back by an economic myth -- one that has yet to be challenged in political debate, despite an ever-growing body of evidence against it.
The paper, by L. John Bivens of the Economic Policy Institute, is called "Why is recovery taking so long -- and who's to blame?"
The myth is called "austerity," and it can be roughly defined as "the persistent but false belief that government spending cuts are always a good idea."
Here are seven things about austerity worth knowing:
1. Our current recovery is too slow, and isn't reaching everybody it should.
As Bivens points out, employment took longer to reach its pre-recession levels this time around than it did in the previous three recovery periods. Perhaps even more significantly, the rate of job creation remained slower after the recession officially ended.
What's more, the jobs created after the 2009 crisis were weighted heavily toward lower-income professions. Labor force participation for people of working age remains low, even though it has improved somewhat.
And, as the Center for Economic and Policy Research recently reported, the percentage of people who are involuntarily working part-time rather than full-time is 25 percent higher now than it was before the recession.
As CEPR's Nick Buffie notes, "Over 6 million people are working part-time involuntarily, and on average they work 23 hours per week. Because full-time workers are typically employed 42-43 hours per week, this is effectively a wage cut of almost 50 percent for the affected workers."
2. The weak recovery affects a lot of full-time workers.
It is not just the unemployed and underemployed who are affected by the weak recovery. Many full-time workers are earning less than they would be if the economy had rebounded at a faster pace, creating more and better jobs than it has.
The American middle class needs a raise. But millions of people won't get their raises until the economy is stronger and the demand for workers goes up. And demand will remain low until there are more jobs to fill.
3. We know what to do about it.
Government has two tools at its disposal in situations like this: monetary policy and fiscal policy. Monetary policy was promptly deployed after the latest crisis, both to bail out Wall Street and to improve the overall economy. The Federal Reserve should have been more attentive to the Main Street economy, using some of the creativity it used to rescue the financial sector, but it did cut interest rates and that helped.