The Shrinking Public Sector

Matt Yglesias makes an important observation about the dismal recent labor market statistics:

Looks like we had 17,000 thousand new private sector jobs in August, which were 100 percent offset by 17,000 lost jobs in the public sector. The striking zero result should galvanize minds, but it’s worth noting that this has been the trend all year. The public sector has been steadily shrinking. According to the conservative theory of the economy, when the public sector shrinks that should super-charge the private sector. What’s happened in the real world has been that public sector shrinkage has simply been paired with anemic private sector growth.

Our graph shows total government employment since January 2007 as well as employment by state and local governments over the same period. Total government employment has actually been declining since the month Barack Obama became President. While Federal employment has risen very slightly on net during this period (it too has been falling of late), employment by state and local governments has declined by 650,000 over this same period. As far as the conservative theory that Matt alludes to, alas private employment has not risen to offset this Herbert Hoover fiscal policy.

The Free Market: Looting, Shooting, and Polluting

I uploaded a Youtube post. I used up my time before I was able to pull everything together. Here is the url:

http://www.youtube.com/watch?v=cuznKDUbemw

Schäuble: Bankrupt

Amazing.  Schäuble’s opinion piece in the FT is titled “Why austerity is only cure for the eurozone”, and his argument is

Piling on more debt now will stunt rather than stimulate growth in the long run. Governments in and beyond the eurozone need not just to commit to fiscal consolidation and improved competitiveness – they need to start delivering on these now.

and

There is some concern that fiscal consolidation, a smaller public sector and more flexible labour markets could undermine demand in these countries in the short term. I am not convinced that this is a foregone conclusion, but even if it were, there is a trade-off between short-term pain and long-term gain. An increase in consumer and investor confidence and a shortening of unemployment lines will in the medium term cancel out any short-term dip in consumption.

Cutting employment and income will increase confidence in future employment and income—did I hear that right?  That must be why there is such a positive market reaction every time a new round of statistics points toward contraction.

And, incidentally, how are all the world’s governments going to simultaneously increase competitiveness?

It’s unfortunate, to put it mildly, that our economic futures depend on people like this.