Austerity and Unemployment

When governments impose massive cutbacks to contain deficits, almost every penny is directed at eliminating jobs or reducing payments to people. Last fall, when the newly installed U.K. government announced their austerity plan, Prime Minister David Cameron (pictured above) cut foreign aid package, cut the Queen’s annual operating budget, but most of all, he announced the elimination of 500,000 government jobs. Every one of those employed individuals carried at least one and most probably two additional jobs in the private sector as money is spent at each level as rent is paid, food is purchased, goods acquired, etc. That’s a huge fall for a country of 62 million. Inflation fears seem to have trumped unemployment concerns throughout Europe as several million individuals found themselves without work.

The European social safety net cushioned the short term blow for many, but if you have been reading the news, you may have noticed that even beyond the PIGS (Portugal, Ireland, Greece and Spain – the hardest hit European Union nations), generally, the overall economic picture for Europe is hovering around bleak. The conservative wave sweeping Europe was driven by images of post-WWI Germans carrying suitcases of currency around to buy small amounts of basic foodstuffs, “that won’t happen here!” was the cry. Depression? We’ve been there before, and we can manage that, they noted. With a blend of countries, each suffering economically at a different level (Germany’s manufacturing and exporting machine is gathering speed, for example), having a common currency is spreading pain across the continent.

The Keynesian solution, developed a very long time ago by a British economist, suggests that when consumer demand vaporizes, to stabilize and restart economic growth, it is the government that must step in and, until the private sector resets demand, replace lost consumer spending with its own expenditures, even at the risk of incurring deficits. Clearly, Europe has rejected this notion, and while the Bush Administration, followed by the Obama camp, seemed to embrace Keynesian stimulus dictates, the new GOP power in the House of Representatives (where all appropriation legislation emanates) – particularly Tea Party regulars – is targeting massive cutbacks without regard for unemployment. Cutting support to states will simply accelerate job cutbacks at the local level, and trust me, this isn’t going to be a Republican vs. Democratic issue for very long… there are lots of Republican governors hounding the feds for cash.

Obama has prioritized education, infrastructure and energy-directed programs like expanding mass transit and alternative sources of power (to reduce oil consumption as oil prices steadily erode Americans’ paychecks… those that are working anyway). Education, he noted correctly, is what trains people for future global productivity and always pays for itself… eventually. Fixing and building bridges, roads and dams obviates the massive costs of inevitable disasters that decimate under-built infrastructure, stall the movement of goods and people (workers!) down our highways while piling on the gasoline costs (a huge productivity drain), all things that, sooner or later, improve efficiency and ultimately pay for themselves.

The Republican faction has responded that while all that is great on paper, we just don’t have the money, so their first announced proposed cutbacks are education, infrastructure, mass transit and paying local communities unable to afford it for police officers. With the government facing a budget need in March, the GOP is also looking for additional cuts to drop the government deficit by $100 billion, but somewhere in this mix is the reality that fewer workers able to pay taxes, and more new workers drawing unemployment, will also raise some costs while reducing revenues elsewhere – short term – and will cost the United States competitive dollars in the long term.

How is mega-growth-oriented China responding to it all? By subsidizing its best and brightest in getting an education wherever they can – at government expense! “Applications to U.S. schools by Chinese students are up 30 percent from last year. At Grinnell College in rural Iowa, one out of every 10 applicants is from China, a result of the school’s heavy marketing there… And a huge number of Chinese applicants have perfect 800s on the math section of their SATs, making them virtually indistinguishable to American schools.” LBN Alert, Feb. 12^th. Where do we prioritize our expenditures?

The U.S. military represents an annual spend between $600 and $700 billion dollars (China spends less than $100 billion), consumes between 4-5% of our gross domestic product and accounts for almost half of the aggregate of all military spending on earth. It has also brought you a new pro-Iranian Shiite government in Iraq and a slow-winding-out-of-control corrupt government in Afghanistan that our own military assessments in the field tell us is slowly being replaced by a shadow Taliban government (that assesses taxes, administers courts and runs most local communities outside of Kabul). Military casualties bring long-term financial commitments as well in addition to the human suffering entailed. While the military is expected to join in the march for budget reductions, the same conservatives that would slash education and infrastructure appear to be unwilling to apply an obvious “big picture” ax where it seems to be needed most.

So we are assuming that this new trend, supported by a huge increase in GOP Senators and House Representatives, is the will of the people… that this will be the inevitable path to a new President in 2012… that Americans, like their seeming European counterparts, prioritize austerity over employment. After all, the jobless rate has fallen to 9%... I suspect that leadership might just be over-looking what Americans have most recently said is their biggest concern.

The February 11^th Los Angeles Times present the new “new reality”: “A new Gallup Poll out this morning finds more Americans saying unemployment is the most important issue than at any time in nearly three decades, a span involving five presidents…Thirty-five percent now say that… And Americans don't seem fooled either by the latest national unemployment rate of 9%... It drifted down there last month from 9.4% not because a puny 36,000 new jobs were created, but because so many thousands of Americans gave up looking for work, thus removing themselves from that bellwether unemployment count.” Folks fearing unemployment don’t spend as much money or buy new homes… Folks without education don’t qualify for jobs with good pay. Is the pendulum swinging back? And what was the unemployment rate in Tunisia, Egypt, etc. when the riots began? It’s the economy stupid! Where have I heard that before?

I’m Peter Dekom, and a pile of zealous doctrine-touting new Congress-folk are locked in a perception that the American message that got them elected is immutable… but maybe they’re not reading the latest tea leaves.