Lots of talk about the austerity in Europe and how it doesn't seem to be working well. But less well publicized is that we have essentially switched to austerity here in the US as many of the 50 states have had to turn to pretty drastic cuts just as the federal fiscal stimulus fades out. What does it mean, well the Wall Street Journal decided to see what the unemployment rate would be without all the cuts to government jobs and they find that it would be 7.1%. But this does not take into account all of the general equilibrium effects. As they state:
If there were as many people working in government as there were in December 2008, the unemployment rate in April would have been 7.1%, not 8.1%. Ceteris is rarely paribus, of course: If there were more government jobs now, for example, it’s likely that not as many people would have left the labor force, and so the actual unemployment rate would be north of 7.1%.Which is true, but also possible is that the economic activity from those jobs and salaries (the multiplier) could have kept overall economic activity substantially higher and we would even be well below 7%. They don't mention this but they should. Nevertheless it is all speculation, we are where we are and the sluggish recovery certainly has a lot to do with all of the cuts going on at the state level these days.