Sunday, 17 February 2013

Austerity under Obama

In the last around-the-traps I had a small section on austerity in the USA.
I thought I might elaborate on it as it is the reason why the recovery over there is so weak.

Mark Thoma shows us that when examining annualised real per per capita spending from Nixon to Obama it is ONLY under Obama where it is negative.

Ezra Klein shows us that under Obama the total public sector DETRACTED from growth in 10 of the 16 quarters (of the first term). Under both the sainted Reagan and Bush it boosted growth in 13 of the 16 quarters.
Ezra has calculated that if Obama had spent as much as the sainted Reagan average growth during his first term would have risen from 2.4% to 3.2%

Janet Yellen speech shows a similar story. Whereas under Obama the public sector added to growth in the first year of the recovery. It detracted from growth thereafter.

As we have talked about previously, this is because state and local government have drastically cut back on their spending this time as opposed to previous recoveries. We have also noted previously if they had adopted the same employment policies as they did in the Reagan recovery unemployment would be approaching 5% and the Fed would be raising rates.

I might end by simply observing if a person alleges spending is the problem but cash rates are not rising and the public sector is detracting from growth then the person has NO idea of what they are talking about.