Main Street

Say It, Say It Again

Whatever you may hear from conservative pundits pretending to be economists, or from paid lobbyists pretending to be economists, there truly is a consensus among serious economists that the stimulus provided by last year’s Recovery Act was essential to stabilizing the economy and preventing even more severe job losses. More importantly, the consensus among economists is that the stimulus was not large enough to provide positive traction on job creation and that more jobs stimulus is now needed. A lot more.

That this consensus is not yet an accepted fact of political and economic reality is the result of the totally fake deficit fear-mongering promulgated by those who want to maintain their supremacy over working people — employed, unemployed or underemployed — in this country.

Let me say it: there won’t be a real economic recovery without substantial, continuous job growth.
And there won’t be substantial job growth without an additional array of targeted job-creation programs — ones that finally are no longer too small to succeed.

So, let’s say it and say it again.

What economist Dean Baker calls “The Budget Deficit Crisis Crisis”:

The country faces a serious crisis in the form of a manufactured crisis over the budget deficit. This is a crisis because concerns over the size of the budget deficit are preventing the government from taking the steps needed to reduce the unemployment rate. This creates the absurd situation where we have millions of people who are unemployed, not because of their own lack of skills or unwillingness to work, but because people like Alan Greenspan and Ben Bernanke mismanaged the economy.
The basic story is very simple and one that we have known since Keynes. We need to create demand in the economy. The problem is that, as a society, we are not spending enough to keep the economy running at capacity.

The hole from the collapse of construction and the falloff in consumption is more than $1 trillion a year. The government is the only force that can make up this demand. However, this means running large deficits. To boost the economy, the government must spend much more than it taxes.

The stimulus approved by Congress last year was a step in the right direction this way, but it was much too small. After making adjustments for some technical tax fixes and pulling out spending for later years, the stimulus ended up being around $300 billion a year. Even this exaggerates the impact of the government sector, since close to half of the stimulus is being offset by cutbacks and tax increases at the state and local level.

The answer in this situation should be simple: more stimulus. But the deficit hawks have gone on the warpath insisting that we have to start worrying about bringing the deficit down. They have filled the airwaves, print media and cyberspace with solemn pronouncements about how the deficit threatens to impose an ungodly burden on our children.

This is of course complete nonsense. Larger deficits in the current economic environment will only increase output and employment. In other words, larger deficits will put many of our children’s parents back to work. Larger deficits will increase the likelihood that parents can keep their homes and provide their children with the health care, clothing, and other necessities for a decent upbringing. But the deficit hawks would rather see our children suffer so that we can have smaller deficits.

The current projections show that, even ten years out on our current course, the ratio of debt to GDP will be just over 90 percent. The ratio of debt to GDP was over 110 percent after World War II. Instead of impoverishing the children of that era, the three decades following World War II saw the most rapid increase in living standards in the country’s history.

The reality is that we have an unemployment crisis today, not a deficit crisis. The only crisis related to the deficit is that people with vast sums of money (i.e. the people who wrecked the economy) have been able to use that money to make the deficit into a crisis.

New York Times columnist and Nobel Laureate economist Paul Krugman on “Fiscal Scare Tactics”:

These days it’s hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit. The deficit threatens economic recovery, we’re told; it puts American economic stability at risk; it will undermine our influence in the world. These claims generally aren’t stated as opinions, as views held by some analysts but disputed by others. Instead, they’re reported as if they were facts, plain and simple.

Yet they aren’t facts.

The point is that running big deficits in the face of the worst economic slump since the 1930s is actually the right thing to do. If anything, deficits should be bigger than they are because the government should be doing more than it is to create jobs.

The trouble, however, is that it’s apparently hard for many people to tell the difference between cynical posturing and serious economic argument. And that is having tragic consequences.

For the fact is that thanks to deficit hysteria, Washington now has its priorities all wrong: all the talk is about how to shave a few billion dollars off government spending, while there’s hardly any willingness to tackle mass unemployment. Policy is headed in the wrong direction — and millions of Americans will pay the price.

Mark Zandi, chief economist of Moody’s economy.com on the Ed Schultz show on MSNBC:

Visit msnbc.com for breaking news, world news, and news about the economy

Robert Reich, former Secretary of Labor and Professor of Public Policy at UC Berkeley:

President Obama today offered a set of proposals for helping America’s troubled middle class. All are sensible and worthwhile. But none will bring jobs back. And Americans could be forgiven for wondering how the President plans to enact any of these ideas anyway, when he can no longer muster 60 votes in the Senate.

The bigger news is Obama is planning a three-year budget freeze on a big chunk of discretionary spending. Wall Street is delighted. But it means Main Street is in worse trouble than ever.

A spending freeze will make it even harder to get jobs back because government is the last spender around. Consumers have pulled back, investors won’t do much until they know consumers are out there, and exports are miniscule.

Today, though, there’s no sign on the horizon of a vigorous recovery. Jobs may be coming back a bit in the next months but the country has lost so many (not to mention all those who have entered the workforce over the last two years and still can’t land a job) that it will be many years before the middle class can relax. Furthermore, this recession isn’t like other recessions in recent memory.

Obama can no longer afford to come up with lists of nice things to do. At the least, he’s got to do two very big and important things: (1) Enact a second stimulus. It should mainly focus on bailing out state and local governments that are now cutting services and raising taxes, and squeezing the middle class. This would be the best way to reinvigorate the economy quickly. (2) Help distressed homeowners by allowing them to include their mortgage debt in personal bankruptcy — which will give them far more bargaining leverage with morgage lenders. (Wall Street hates this.)

And, lastly, Nobel Laureate economist and Columbia University Professor Joseph Stiglitz in an interview February 9:

Say it, say it, say it, say it again.

Tags: Jobs, recovery, stimulus