Just back from a segment on MSNBC’s Rev Al show wherein we worried about the impact of Congressional screwing around with the Highway Trust Fund on the job market.
I wrote about this concern on the day of the last jobs report, which you’ll recall was a pretty strong report, under the heading “Congress, PLEASE don’t screw up today’s great news on jobs.” The idea is that this is a really, really bad time to be flirting with another fiscal cliff/self-inflicted wound, which in this case would be failing to replenish the soon-to-be-exhausted HTF, leading to the suspension of highway projects and layoffs.
In the context of this discussion, I keep the figure below in the back of my mind. It’s from Goldman Sachs researchers, showing the extent of positive and negative impacts from fiscal policy on real GDP. When economists talk about fiscal tailwinds helping to push a weak economy forward, we’re talking about bars above the line, representing the increase in the level of real GDP. And vice versa re fiscal headwinds.
The impact of the Recovery Act is clear in 2009-10, but here I’d like to focus on the difference between 2013 and this year. Last year, fiscal austerity led to the loss of about 1.5% of real GDP, which amounts to about three-quarters of a point of unemployment, or over a million jobs in a labor force of 155 million.
This year, the fiscal impulse has been and is expected to stay pretty neutral. It’s one reason why the job market is improving and evidence of how both here and in Europe, it’s actually been hard for economies still damaged by the Great Recession to make real progress with fiscal policy pushing the wrong way.
Think of those stabilizing bars in 2014 in the context of the HTF debate. To screw around with the fund is to move from “do no harm” to actively slowing growth, and at a time when we actually have a bit of velocity.
It’s now looking like they’ll come up with a last minute patch to replenish the fund, before states have to start laying people off. But no one should underestimate the ability of these folks to snatch defeat from the jaws of victory. And a patch isn’t a victory anyway—it’s a patch, which means we’ll be back here before we know it.
Source: Goldman Sachs Research