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Economy is Still Limping. So Why Are We Cutting Spending?

David Callahan

It's hard to say exactly why the labor market grew at such a tepid pace last month, adding just 88,000 jobs - not nearly enough to make a dent in the millions of unemployed or even keep up with population growth. Overall, though, it seems clear that consumers are still tapped out, with their incomes flat for years, and many of the new jobs being created lately are low-wage positions that don't leave people with much spending money. 

This economy isn't out of the woods yet. Not by a long shot.

Which raises an obvious question: Why are we cutting spending? Actually, let's forget about the spending for a second and consider another question: Why did Congress end the temporary payroll tax holiday as part of the "fiscal cliff" deal? 

The answers here are no mystery. Despite evidence that the public wants to Congress prioritize job creation over deficit reduction -- along with a great many economists -- Washington is doing the exact opposite. Nearly ever worker in America started getting smaller paychecks in January as a result of ending the payroll tax holiday. While we can't say for sure whether that's a key factor in slowing job creation, it surely is a factor. And now layoffs are kicking in thanks to sequestration. 

Unfortunately, though, there is another, more ominous possible explanation for weak job growth: Which is that the U.S. economy has changed and been restructured since the financial crisis in ways that decrease the need for new workers. More positions have been consolidated, more jobs outsourced, and more machines brought online that replace workers -- from high-tech robots in manufacturing plants to self-check kiosks at the local CVC. 

We may be witnessing a familiar bad scenario whereby Congress makes a recovery harder by prioritizing deficit reduction. But the worst case scenario is that the old days of cyclical recoveries are over and, instead, we are moving fitfully into what sociologist Stanley Aronowitz has called "The Jobless Future."