For Whom the Austerity Bell Tolls

May 14th, 2012 at 8:14 pm

In conversations and debates around the recent deceleration in job growth, when I’ve pointed out that we here in the US have our own austerity programs going, I’m often met with disbelief.  After all, we’ve got these huge federal budget deficits, right?!

Right, but what matters in terms of foot-on-the-accelerator is the change in the budget deficit, and the fact is we’ve been letting up right as the economy appears to have a slowed a bit.  Add state fiscal drag and the growing unemployment insurance cuts and you get the picture.

On the first point, the figure compares the budget deficit so far this fiscal year with the one from the same months of last FY.  Last year’s was $150 billion more negative.  Annualized, that’s enough to drive the unemployment rate a half-point higher than it would otherwise be.

Source: Treasury Dept.

Then there are all the state job losses, which are also keeping the unemployment rate elevated, as I show here.

Finally, as my CBPP colleague and UI expert Hannah Shaw points out, over 400,000 long-term unemployed persons in 25 high-unemployment states have lost UI benefits so far this year as the extended benefits program is ending in states across the land. 

Just look at those unemployment rates in the table below—10.9% in CA, 9.1% in IL, 8.8% in MI, 9.9% in NC.  These are areas where labor demand is still way below the level needed to provide anything like a welcoming job market.   Yet we’re kicking folks off the roles.

So, next time someone asks you for whom the austerity bell tolls, tell them it ain’t just the EU.

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3 comments in reply to "For Whom the Austerity Bell Tolls"

  1. Middle Molly says:

    As someone whose family will be impacted by this cut, I have very mixed feelings about the decrease in unemployment benefits. Unemployment IS going down, and it makes sense that, as the number of job openings go up, the length of time of compensated unemployment should go down.

    But the Extended Benefits program, with its bizarre system of look back years and percent of prior unemployment rates, is absurd and needs to be simplified. The chart in this article shows the absurdity: Whereas it may make sense that states with unemployment rates that have fallen into the 7’s% should have their weeks of available compensation lowered, why should states, some big states, such as California, Illinois, Florida, Michigan, and North Carolina, with unemployment rates still in the upper 8’s% or higher, be cut off?

    Why in the world can’t Congress simplify and solidify this system? If the unemployment rate in a given state goes above, say, 6.5%, individuals get x extra weeks of unemployment benefits. If it goes above, say, 7.5%, individuals get y extra weeks… and so on. No crazy compromises, no extra stress for those who are unemployed wondering whether or not Congress will stitch together some kind of complicated, incomprehensible last minute deal… just something simple and sane.

    Well, I can dream.

  2. readerOfTeaLeaves says:

    Re austerity: I’d like to draw attention to an article at the Guardian of a new report detailing why many British families became so vulnerable to debt in the period leading up to the ‘financial crisis’:

    …[The report] noted that the bottom 10% of households bridged the gap between a 17% rise in incomes in the decade between 1997 and 2007 and a 43% rise in spending by taking on more debt.

    Prof Elizabeth Warren’s “The Two Income Trap” details how banks focused on the most profitable debtors: i.e., people with lower credit scores. The lower the credit score, the more lucrative the customer (via higher interest rates charged). These dynamics make debt, and debt servicing, more lucrative than most other economic activities.

    The Guardian article appears to show fairly powerfully that increasing inequality drives debt.
    And increasing debt drives higher profits for subprime lending.
    Consequently, the increased subprime profits concentrate capital.
    As a result, this concentrated capital requires new levels of political control — which then cycle around to drive continuing levels of inequality, which in its turn drives additional debt.

    Austerity does not break this vicious cycle; it feeds it.

  3. rjs says:

    why didnt anyone cover the new formulas for cutting off federal unemployment compensation at the time it was enacted? (negotiated as part of the payroll tax cut extension early this year)

    i wrote about that package, extracting everything i could find from other web articles, & unemployment comp barely got mentioned…those of us who communicate to the street count on you guys to discover the intracacies of that type of legislation before it is passed, not complain about it 4 months late….