I've looked at government purchases in two recoveries, the one that began in November 1982 and the one that began in June 2009. Here's government employment:
Notice the brief blip associated with the Census, which got seized on by the right as evidence of a bloated expansion. But the reality is that around 1.3 million more people would be working for government right now if employment had followed the track of the Reagan recovery.
PS: For those who think I'm cherry picking, it's worth noting that even if you don't focus solely on government purchases and employment — even if you just look at total government spending, including unemployment insurance — the Reagan years generally saw faster spending growth than the Obama years, and never saw anything like the recent squeeze:
Reagan, Obama, Austerity
A followup on the effects of austerity at the state and local government level, which have led to a decline in government purchases of goods and services that stands in stark contrast to earlier recoveries. I pursued this a bit more, and have a startling calculation to offer.
Let's look at the comparison between government purchases in the Reagan "Morning in America" recovery and the current recovery:
At this point in the Reagan recovery government spending had risen 11.6 percent; this time around it's actually down by 2.6 percent. So if we had followed the Reagan track, spending would be almost 15 percent higher.
Since government spending on goods and services is about $3 trillion a year, spending on the Reagan track would have meant more than $340 billion more in direct government demand, or more than 2 percent of GDP. Include the multiplier effect, and we would have expected real GDP to be something like 3 percent higher — and given Okun's Law, the unemployment rate to be 1.5 percentage points lower, or something like 7 percent.
How does this compare with the Reagan recovery at a corresponding stage? Hmmm:
So what my calculation suggests is that if it weren't for austerity, American style — the result of the failure to provide sufficient aid to state and local governments — we might well have an unemployment rate right now that was lower than unemployment at the comparable stage of "Morning in America".
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