Expect a slow trudge out of stagnation as Washington follows Europe’s lead

CORNELL UNIVERSITY MEDIA RELATIONS OFFICE

Expect a slow trudge out of stagnation as Washington follows Europe’s lead

Friday, May 3, 2013

Steven C. Kyle, an expert in macroeconomics and government policy and an economics professor at Cornell’s Dyson School of Applied Economics and Management, discusses how the small drop in unemployment reported in today’s Bureau of Labor Statistics Employment Situation Summary reflects the economic drag of federal fiscal contraction policies.

Kyle says:

 

“In what now passes for ‘good news’ the economy showed an above-expectations jobs report which caused the jobless rate to edge down a tenth of a point to 7.5 percent. The movement in the rate was driven by improvements in the private sector but was less than it otherwise would have been due to continued contraction in government employment.

“We have to worry about this in the months to come as the effects of the sequester work through the economy.  If government employment had merely kept pace with spending and population trends, as it has in every other recession since World War II, we would be looking at a vastly different picture right now.  As it is, with Congress insisting on continued fiscal contraction and the President going along with it, we should expect continued slow growth in the months to come.

“Also worrying is the continued drift downward in inflation, currently hovering around the 1 percent level.  Strange though it may seem to be worried about too little inflation, it is important to remember that in a situation where trillions of dollars are sitting on the sidelines and consumers are still trying to work off excessive debt loads, a little inflation would help erode the burden of that debt while providing an incentive for businesses to invest that cash instead of just sitting on it.

“Where will help come from?  Don’t look at government in the current political climate, and certainly don’t look abroad at Europe, where we can see the results of wrong-headedly premature budget balancing efforts in record high – and rising – unemployment rates.  Expect a continued slow trudge out of stagnation.”

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