Public spending cuts, while on the rise worldwide, are bad for the U.S. economy. U.S. states provide a good illustration of this principle. Since the start of the Great Recession 20 states have cut public spending while 30 states expanded spending. Those that cut spending have fared worse economically than those that expanded spending.
The median “spending cut” state saw the following results:
- The unemployment rate is 4.1 percentage points higher
- There are 6 percent fewer private-sector jobs
- The state economy is growing 2.7 percentage points slower than before the recession
On average, states that resisted cuts and expanded public expenditures saw the following results:
- Unemployment is 3.5 percentage points higher than before the recession
- Lost private-sector jobs are only two-thirds the rate of the average spending cut state.
- The economy is growing 2.6 percentage points faster than before the recession.
This column digs deeper into these numbers to see why slashing public spending makes a fragile economy worse. We argue that a strong and sustained economic recovery hinges on government investment.
SOURCE: Austerity Is Hammering State Economies.