Government Job Cuts and a Second Great Depression

The latest job numbers raise the specter of the United States falling from recession into depression, Dean Baker argues in The New Republic this week.

The key to ultimately getting out of the current economic rut, he writes, is creating demand in the economy. But that's hard to do when the government is fixated on reducing federal budget deficits. Slow growth in job creation and stagnant wages, coupled with the ongoing collapse of housing prices, has suppressed consumption, which accounts for 70 percent of the economy.

Sources of rescue are few under such circumstances. In fact, argues Baker, with our trading partners mired in their own economic downturns, government at all levels in the United States is "the only remaining candidate for boosting the economy." But the problem is that the deficits created by the massive 2009 American Recovery and Reinvestment Act have left little taste in lawmakers' mouths for more stimulus spending.

In fact, Baker notes, quite the opposite is occurring:

Instead, we are seeing cutbacks at all levels of government. These cutbacks led to a loss of 29,000 jobs in May. The pace of job loss is only likely to increase when states impose another round of cuts on July 1, the beginning of a new fiscal year for most of them. ... Moreover, there are more factors pointing to slower growth than faster growth going forward. In addition to the state and local cuts kicking in next month, the new fiscal year for the federal government begins October 1. This is also likely to involve further cuts in spending. And the payroll tax cut is scheduled to end 3 months later, as is the extension of unemployment benefits. At some point, the pain of high unemployment across the country may lead to some new thinking in Washington, but until that time, welcome to the second Great Depression.