CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press The Washington Post Says It Doesn't Miss Lower Unemployment and Rising Wages

The Washington Post Says It Doesn't Miss Lower Unemployment and Rising Wages

Saturday, 19 July 2014 10:14

That might not be a surprise to regular readers of the paper, but there it was in black and white in a column talking about the budget deficit. The piece notes how the deficit has gotten much smaller in recent years and therefore people are paying much less attention to it. The last line in the piece told readers;

"Well, we don’t miss the deficit. But we sure miss that clock [a debt clock used as campaign prop by Governor Romney]."

Actually, people who care about jobs and wage growth do very much miss the deficit. The spending that was cut to reduce the deficit was creating jobs. There is no magical process by which this spending will be replaced by demand in the private sector, which means that the reduction in government spending means less demand and jobs in the economy. [If the deficit hawks at the Post think otherwise they could grab themselves a quick Nobel prize in economics by showing how.] 

In addition, fewer jobs means that those at the middle and bottom of the labor force have less market power and therefore less ability to secure higher wages. This is good news for the small segment of the population that owns lots of stock and can benefit from higher corporate profits and cheap help, but it is bad news for the vast majority of people in the country. At least the Post has made clear which side they are on, just in case there was any confusion.

Comments (5)Add Comment
Balanced Budgets are Disastrous
written by Paul Mathis, July 19, 2014 12:17
Over the past 60 years in the United States, every time the federal budget has been balanced or in surplus, we have then had a recession. The recessions of 1957, 1960, 1969 and 2001 were all immediately preceded by budget surpluses and the recessions of 1954, 1974 and 2008 were all immediately preceded by budgets that were nearly balanced - deficits of 1% of GDP or less. The Great Depression was immediately preceded by record budget surpluses and the “Roosevelt Recession” of 1938 was caused by FDR’s misguided balancing of the federal budget (a deficit of 0.1% of GDP in 1938) while the economy was still very weak. whitehouse.gov/omb/budget/historicals

Keynes analyzed this situation carefully and his conclusion was unequivocal: “a change-over from a policy of Government borrowing to the opposite policy of providing sinking funds (for paying off the principal of a debt) is capable of causing a severe contraction of effective demand.” The General Theory, p. 95.

When the U.S. government over the past 60 years has stopped deficit spending and, in the worst case, started paying off its debt, the result has always been a recession shortly thereafter because demand is being drained from the economy and therefore profit margins of companies fall. As profit margins fall, employees must be laid off causing incomes to fall, thus creating a vicious cycle as consumers reduce spending further.
noble doesnt require reality
written by djb, July 19, 2014 5:15
just make a couple unrealistic assumptions

rational expectations (invisible hand)
market clearing (Say's Law)

put it in the form of some complicated math with the parameters adjusted to prove whatever you want

you'll get a couple nobels out of that
Confidence Fairy
written by JayR, July 19, 2014 7:08
"There is no magical process by which this spending will be replaced by demand in the private sector..." Yes there is. It is called the Confidence Fairy. ;) Paul Krugman I think coined the term. It is the idea that business will see the deficit is shrinking and suddenly start hiring and spending. Dean and Paul would of course point out that businesses only hire when they have additional work to do and not just because of "confidence". Dean why not use the term "Confidence Fairy"? It is magical phrase which really sums up this type of thinking.
hmmm less real spending???
written by pete, July 20, 2014 3:47
Seems to me the rapid growth in real spending beginning in the late 90s has not led to higher growth. What am I missing here? Has the rapid increase been largely ineffective with massive rents going to aerospace and NSA corporate sponsors, effectively transfers rather than spending? Perhaps, eh. Be careful what you wish for.

written by John Quick, July 20, 2014 5:26
At least the Post has made clear which side they are on, just in case there was any confusion.

I don't think there was ever any confusion about which side Fox on Fifteenth was on.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.