Republicans are barnstorming across the country in support of a balanced budget amendment. This, they say, will force government to "live within its means" and lead to surging economic growth, though I'm not really sure how they get from A to B. But we don't really have to guess about the impact of a balanced budget amendment, particularly during recessions. Because we're seeing the effects right now.
Since the technical end of the recession in July 2009, the public sector has 430,000 less jobs.
Government employment is now 1.9 percent lower than it was at the start of the recovery, a drop of 430,000 jobs. In contrast, government employment rose by 1.1 percent (or 232,000 jobs) during the equivalent part of the last recovery.
In a testament to how weak the last recovery was, private sector hiring is actually better in this recovery. But the government employment cutbacks counteract it.
As we know, state and local governments cannot print money and are limited by statute in their ability to run deficits. So instead of borrowing in a recession when faced with a budget shortfall, they raise taxes or cut spending. Increasingly during this recession, they opted for the latter. As a result, we are seeing a catastrophe in public sector jobs. These are teachers, nurses, sanitation engineers, cops, firefighters, all being put on the street because state and local governments have to balance their budgets. And while the federal government provided some aid in the stimulus package to help states and localities manage, that has mostly faded away. So more cuts are in the offing.
We saw this with the latest jobs report. The private sector added 154,000 jobs, a solid if unspectacular number. But the public sector lost 37,000. Put those two numbers together and the numbers look far worse. Some have speculated that most of these were due to the government shutdown in Minnesota, which has since ended. But as the graph above shows, this trend has been happening for some time.
Austere government cutbacks, forced by state-level balanced budget requirements, have created a drag on the economy. As Jared Bernstein writes:
That line going down: this is your job market on a balanced budget amendment, another great Republican idea.