"Wonkbook: How Washington increased unemployment and hurt growth"

[applegrove]

Wonkbook: How Washington increased unemployment and hurt growth

By Ezra Klein and Evan Soltas at the WP

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/09/wonkbook-how-washington-increased-unemployment-and-hurt-growth/

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Oof: “The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011, according to private-sector and government economists.”

That’s from Jackie Calmes and Jonathan Weisman. Because each month’s jobs numbers look about the same as the last month’s jobs numbers, it’s easy to get lulled into complacency, to assume that what we’re doing in Washington doesn’t much matter. But adding 208,000 jobs a month — which is our six-month average — isn’t good enough. At that pace of job growth, the Hamilton Project estimates we won’t be back to pre-recession unemployment till 2021.

As the economy strengthens– and it’s clearly strengthening — we need to see job growth accelerate. But Washington keeps putting hurdles in its way. In order to keep job growth steady, the economy has needed to strengthen enough to overcome the payroll tax hike, and the fiscal cliff tax hikes, and the various spending cuts, and the fears over the fiscal cliff and sequestration. The economy, amazingly, is keeping up. But imagine a world in which we didn’t raise taxes and cut spending over the past two years, but passed legislation to help the economy now and reduce the deficit by more as soon as unemployment fell to six percent.

What’s remarkable about that world, I think, is that it’s better no matter your theory of recovery. If you’re a deficit hawk, a larger and more credible deficit reduction plan, one that includes more entitlement and tax reforms, is far more comforting to markets. If you’re a Keynesian, policy would be more expansionary now. If you simply hate taxes, well, taxes would be lower now. There’s no economic theory that would ever counsel the course we’ve chosen.

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