An unemployment rate of 8.1% translates to roughly 12.5 million Americans out of work. In rough numbers, every time the unemployment rate goes up one tenth of a percent, an additional 154,000 Americans are added to the unemployment rolls.
According to Okun’s Law, a 1% rise in unemployment translates into a 2% drop in Gross Domestic Product (GDP). High unemployment has an impact on government expenditure, taxation and the level of government borrowing each year. An increase in unemployment results in higher benefit payments and lower tax revenues. When individuals are unemployed, not only do they receive benefits but also pay no income tax. As they are spending less they contribute less to the government in indirect taxes. This rise in government spending along with the fall in tax revenues may result in a higher government borrowing requirement.
In yesterday’s edition of The Wall Street Journal, Justin Lahart wrote an article citing Department of Labor statistics which made the case that without the deep cuts in state and local government spending, the unemployment rate would be 7.1% a full percentage point lower than it is today. Image may be NSFW.
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That’s an additional 1.54 million people who would be working today and not looking for a job.
Lahart wrote: The Labor Department’s establishment survey of employers — the jobs count that it bases its payroll figures on — shows that the government has been steadily shedding workers since the crisis struck…
Lahart postulates ”One reason the unemployment rate may have remained persistently high: The sharp cuts in state and local government spending in the wake of the 2008 financial crisis, and the layoffs those cuts wrought.” This sharp reduction in state and local spending was a result of the insistence by Congressional Republicans like Scott Garrett that stimulus money earmarked for the states had to be eliminated from President Obama’s stimulus package.
As previously stated here on this site, it is more costly to our economy to have higher unemployment than it is to pay interest on borrowed money to keep government workers employed.
Scott Garrett, you’ve been backed into a corner by The Wall Street Journal, the bible of conservatives everywhere. Here’s proof of what many of us have known all along. Your policies of financial austerity in an economic downturn are having a deleterious impact on us all. Here’s how our economy has performed to date during the Obama Administration. What’s plain to see is that president’s policies are heading this economy in the right direction. Image may be NSFW.
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Taking into account Okun’s Law, Scott Garrett’s economic policies are at least partially responsible for a 20 point decrease in America’s GDP since 2008. No one is happy to see an increase in the annual budget deficit. But there is a time and a place for everything. Mr. Garrett you should have been screaming for financial restraint during the reckless spending years of the Bush Administration. I for one would have had you back if you had bucked your party and demanded that wars be paid for, that tax cuts have a cost – they are not free and finally prescription drug benefits for seniors needed to be paid for as well. But you didn’t do that.
You waited until your party was out of the White House and then decided that “The Great Recession” was the perfect time to bring our financial house in order. Scott Garrett is like a bank security guard who allows the robbers to walk out of the bank with all our money and pulls his weapon on the person who comes in to ask for a loan.
Filed under: Economy Tagged: Justin Lahart Image may be NSFW.
Clik here to view.
Image may be NSFW.Clik here to view.
Image may be NSFW.Clik here to view.
Image may be NSFW.Clik here to view.
Image may be NSFW.Clik here to view.
Image may be NSFW.Clik here to view.
Image may be NSFW.Clik here to view.
