Theory 0 - Reality Way Too Much

From Paul Krugman's Sunday column:

Although you’d never know it listening to the ranters, the past year has actually been a pretty good test of the theory that slashing government spending actually creates jobs. The deficit obsession has blocked a much-needed second round of federal stimulus, and with stimulus spending, such as it was, fading out, we’re experiencing de facto fiscal austerity. State and local governments, in particular, faced with the loss of federal aid, have been sharply cutting many programs and have been laying off a lot of workers, mostly schoolteachers.

And somehow the private sector hasn’t responded to these layoffs by rejoicing at the sight of a shrinking government and embarking on a hiring spree.

O.K., I know what the usual suspects will say — namely, that fears of regulation and higher taxes are holding businesses back. But this is just a right-wing fantasy. Multiple surveys have shown that lack of demand — a lack that is being exacerbated by government cutbacks — is the overwhelming problem businesses face, with regulation and taxes barely even in the picture.

How many jobs were created in August?

Zero.

Happy Labor Day.