According to the Washington Post, the economy created 165,000 new jobs in April; the unemployment rate dropped to 7.5%. This is the lowest rate in four years. Since Barack Obama became president, the economy has created more than 5 million jobs.
The economy has been improving steadily. But the unemployment outlook would have been even brighter if conservative legislators were not determined to foist austerity policies on the government. In fact, if the government had fully adopted the policy recommendations of Keynesian economists like Paul Krugman, the economy would have created even more jobs and the unemployment rate would be much lower than the current 7.5%. After years of debate between Krugman, who is an ardent advocate of more government spending to promote a more robust economic recovery, and those who maintain that reduction in government spending is the surefire way to restore economic growth, the verdict is in. Krugman won the debate resoundingly.
Following the sharp economic downturn that occurred four years ago, Krugman has been one of the most prominent voices pushing policymakers to spend additional resources to hire more teachers, rebuild the country's crumbling infrastructure and strengthen the nation's safety net. Krugman argued forcefully that it is important for the government to spend more because the economic downturn and the slow recovery reduced consumer spending. Because of this lack demand, the private sector would curb their investment. Consequently, there would be an economic void that only the government could fill. On the other hand, advocates of austerity contended that more government spending will lead to inflation; they also maintained that the bond market would react negative as a result of this higher level of spending, thereby increasing the borrowing cost of the government.
After his election in 2008, Obama pushed for a stimulus of $787 billion. The stimulus helped reboot the economy; but the financial collapse created a $ 3 trillion gap in the economy that needed to be closed. Although the stimulus revived the economy, it was not big enough as Krugman pointed out on numerous occasions to fill the gap between what the economy has been producing to what it is capable of producing. Hence, the economic recovery is still sluggish since the economy has not been working at full strength.
While Krugman has been tireless in his push for more government spending to grow the economy more robustly, others put the emphasis on cutting government spending as a way to spur economic growth. This policy prescription, however, has not borne fruits wherever it was implemented. For many years, a number of countries in Europe adopted austerity measures in hopes of stimulating their economy. The result has been nothing short than a catastrophe. For instance, the unemployment rate is 27% in Greece and 29% in Spain. In fact, there are many desperate Spaniards who end up going through garbage bins in search for food. Moreover, after years of austerity, many countries in the Euro zone are still not growing.
During the presidency of George Bush, the deficit exploded. Once Obama got elected, Republicans suddenly became born-again deficit hawks. In the name of deficit reduction, they succeeded in forcing government cuts through three manufactured crises: the debt ceiling imbroglio, the fiscal cliff and sequestration.
The newfound emphasis on the deficit and the debt by Republicans has negatively affected the economy in two major ways. First, the relentless focus on deficit prevents the government from borrowing money cheaply in order to make the necessary investment to revitalize the dilapidated infrastructure of the country. Second, austerity led to enormous layoffs in the public sector. When Bush was president, strong hiring in the public sector compensated for sluggish employment in the private sector. But during Obama's term, the public sector has become a drag instead of being a boost to the economy owing to massive layoffs.
In their promotion of government cuts as the most effective way to spur economic growth, Republican lawmakers relied heavily on a study by two Harvard economists: Carmen Reinhart and Kenneth Rogoff. But it was recently revealed that their academic paper contained serious errors. This new revelation is another indication that the Republicans' claims that making deep cuts in government spending would increase economic growth have no basis in fact.
The evidence is mounting against the effectiveness of austerity policies. The question that arises is the following: Would conservative economists, and more importantly Republican legislators, stop advocating for such policies? It is unlikely that they will cease pushing for these policies since it has been evident for many years that austerity has been wrecking the economy of many countries in Europe. Despite the obvious failure of those policies across Europe, Republican lawmakers have not been deterred from seeking to impose them on the country.
After years of intense discussions regarding the best way to create jobs and spur economic growth, the debate has been finally settled. The predictions made by proponents of austerity policy failed to materialize whereas Krugman and other Keynesians economists have been proven right in their forecasts. Therefore, it is past time for policymakers, particularly Republicans, to cease pursuing those misguided policies; more importantly, as many European leaders begin to openly acknowledge the failure of austerity, the media should start holding these conservative lawmakers accountable for seeking to implement disastrous policies that dampen economic growth and keep preventing the government from taking further steps to generate more jobs.