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The Price of Austerity

Austerity is wildly successful — if you understand that the only logical outcome of austerity is higher unemployment. Take a bow, austerity. You did it.

I’ll probably write more about this sobering report from the International Labor Organization. But, here is the upshot, via the executive summary:

In the fifth year after the outbreak of the global financial crisis, global growth has decelerated and unemployment has started to increase again, leaving an accumulated total of some 197 million people without a job in 2012. Moreover, some 39 million people have dropped out of the labour market as job prospects proved unattainable, opening a 67 million global jobs gap since 2007. Despite a moderate pick-up in output growth expected for 2013–14, the unemployment rate is set to increase again and the number of unemployed worldwide is projected to rise by 5.1 million in 2013, to more than 202 million in 2013 and by another 3 million in 2014. A quarter of the increase of 4 million in global unemployment in 2012 has been in the advanced economies, while three quarters has been in other regions, with marked effects in East Asia, South Asia and Sub-Saharan Africa. Those regions that have managed to prevent a further increase in unemployment often have experienced a worsening in job quality, as vulnerable employment and the number of workers living below or very near the poverty line increased.

The above tells us one thing: in a rush to fix a financial mess created by the elite, bankers and policymakers forgot a critical economic fact — in a recession, you don’t cut spending. People need jobs because, otherwise, they have nothing in their wallets to spend, and that just ignites a very dangerous cycle.

As for the future:

Young people remain particularly stricken by the crisis. Currently, some 73.8 million young people are unemployed globally and the slowdown in economic activity is likely to push another half million into unemployment by 2014. The youth unemployment rate – which had already increased to 12.6 per cent in 2012 – is expected to increase to 12.9 per cent by 2017. The crisis has dramatically diminished the labour market prospects for young people, as many experience long-term unemployment right from the start of their labour market entry, a situation that was never observed during earlier cyclical downturns.

Essentially, a whole generation or two of young people is now doomed to economic struggles.

Thank you, Goldman Sachs.

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