"Democrats may come to regret their eager embrace, this spring, of deficit-cutting rhetoric"

[Better Believe It]

A brisk fall
by R.A. | LONDON
October 8, 2010

For its part, the private sector continued to add jobs, as it has in every month of 2010. Private payrolls have grown by 863,000 since the beginning of the year. That's not rapid growth, but it is steady movement in the right direction. It's on the public side of the ledger that matters have been particularly ugly in recent months. In 2010, state governments have shed 38,000 jobs. At the local level the picture is worse still; 231,000 jobs have been cut from local governments in just the last 10 months.

The dynamic is an inversion of the popular story of America's struggling labour market, in which a expanding state creates uncertainty, thereby limiting private hiring. If anything, it appears that private employment is rising steadily despite the demand drag imposed by heavy government job losses, due to the forced austerity of balanced budget rules.

Recent economic data have been relatively positive, which could lead to some strengthening of the private employment growth trend in the months to come. At the same time, the increase in America's labour market slack will likely confirm the Fed in its determination to ease monetary policy further. But the drag from tightening budgets will present a significant headwind to economic growth (in America and elsewhere). The problem could be compounded if the Congress is unable to agree on measures to prevent reversions to higher tax rates scheduled to occur at the end of the year. The economy is simply not ready to handle fiscal consolidation.

And Democrats may come to regret their eager embrace, this spring, of deficit-cutting rhetoric. Then, as now, the trouble in labour markets should have been the primary focus. With these figures sure to feature in Republican stump speeches for the next three weeks, those up for re-election will pay for their mistake.

Read the full article at:

http://www.economist.com/blogs/freeexchange/2010/10/americas_jobless_recovery

[deutsey]

1. The Democrats are going to come to regret a lot of things, I imagine. n/t