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:
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:
In stating his opposition to a public health insurance option, Lieberman sounded familiar notes from reform’s opponents, calling it a “government entitlement program” that will cost the government more money. Neither assertion is true. The public health insurance plan would be paid into, not subsidized, and as the Congressional Budget Office has repeatedly stated, the plan would reduce both premiums and government costs.
Not only are these assertions false, they represent a major change in Sen. Lieberman’s own position on health care. During his reelection campaign in 2006, he highlighted his positions on health care, which included something similar to the public option.
What Lieberman’s objections may well signal now, however, is a potential threat to health care reform with a public option from a gang of Senate “centrists” despite overwhelming support for the public option in recent polls. And that is likely what Majority Leader Reid had in mind yesterday when he said “Joe Lieberman is the least of Harry Reid’s problems.”
Among the Senate Democrats who have not committed to supporting the bill are Evan Bayh of Indiana, Mary L. Landrieu of Louisiana, Blanche Lincoln and Mark Pryor, both of Arkansas, and Ben Nelson of Nebraska.
Including Lieberman, this new “Gang of Six” has the potential to significantly damage health care reform in insidious ways. For example, on the public insurance option, they could withhold support for a cloture vote on the entire bill unless it was further compromised into either an “opt-in” plan, separate state-based plans, or a bogus down-the-road-but-never-happening “trigger” plan.
But the Senate’s public insurance plan with the “opt-out” provision for states, agreed to by Reid, Dodd, Baucus and the White House, is already a compromise. In fact, it’s a compromise of a compromise of a compromise of a compromise of a compromise!
Enough! There can be no more compromises on the public insurance option.
But even if they lose on that key component of reform, the “centrist” gang could — if allowed — still severely undermine other features of the bill. Under the rubric of “deficit reduction” they could try to reduce the number of people helped through subsidies for insurance and reduce those actual subsidies as well. They could push to reduce employer payments for those not covered, putting more of the burden on the middle-class and working families. And they could try to build in additional safeguards to protect the markets and profits of the private insurers — all under the assertion of “reducing costs”.
The lesson for the Democratic leadership and the White House shouldn’t be too tough to have learned. One simply needs to recall the progression of events back in February as the final versions of the stimulus bill were taking shape. In a nutshell, a relatively small group of Senate “centrists” — then led by Senators Lieberman, Ben Nelson (D-NE), Olympia Snowe (R-ME) and Susan Collins (R-ME) — succeeded in cutting roughly $100 billion in actual economic stimulative funding from the bill, substituting a non-stimulative tax reduction for wealthier Americans, thereby significantly hampering the plan’s ability to generate a real recovery.
And all under the rubric of getting to 60 votes, meaning their votes.
Here’s how that brouhaha went down.
On February 5 The New York Times reported “There’s a new gang in town” and they were intent on impacting the pending Recovery Act.
The group was frustrating the Senate majority leader, Harry Reid of Nevada, who was trying to bring the debate over President Obama’s economic program and top legislative priority to a close.
“I have explained to people within that group, they cannot hold the president of the United States hostage,” said Mr. Reid, who added that he was willing to work with them if they intended to be constructive rather than obstructive.
By early evening, aides said the group had drafted a list of nearly $90 billion in cuts, including $40 billion in aid for states, more than $14 billion for various education programs, $4.1 billion to make federal buildings energy efficient and $1.5 billion for broadband Internet service in rural areas. But they remained short of a deal, and talks were expected to resume Friday morning.
The fine print was not immediately available, and the numbers were shifting. But in essence, the Democratic leadership and two centrist Republicans announced they had struck a deal on about $110 billion in cuts to the roughly $900 billion legislation — a deal expected to provide at least the 60 votes needed to send the bill out of the Senate and into negotiations with the House, which has passed its own version.
Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.
My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.
But the competing bills now reflect substantially different approaches. The House puts greater emphasis on helping states and localities avoid wide-scale cuts in services and layoffs of public employees. The Senate cut $40 billion of that aid from its bill, which is expected to be approved Tuesday.
The Senate plan, reached in an agreement late Friday between Democrats and three moderate Republicans, focuses somewhat more heavily on tax cuts, provides far less generous health care subsidies for the unemployed and lowers a proposed increase in food stamps.
When it was clear that the Senate, with their 60 vote fetish, would likely win out, Paul Krugman wrote of “The Destructive Center”:
What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?
A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.
On February 11 The New York Times reported the House-Senate “deal”:
The package of spending increases and tax relief, intended to spur an economic recovery and create jobs by putting money back in the pockets of consumers and companies, ended up smaller than either the House or Senate had proposed.
Even before final Congressional passage it had become clear that the stimulus package had been severely impacted by the Senate centrists, as The Times reported in “Details of a Trimmer Stimulus Emerge” on February 12:
Even before the last touches were put to the bill, some angry Democrats said that Mr. Obama and Congressional leaders had been too quick to give up on Democratic priorities. “I am not happy with it,” said Senator Tom Harkin, Democrat of Iowa. “You are not looking at a happy camper. I mean they took a lot of stuff out of education. They took it out of health, school construction and they put it more into tax issues.”
Mr. Harkin said he was particularly frustrated by the money being spent on fixing the alternative minimum tax. “It’s about 9 percent of the whole bill,” he said, “Why is it in there? It has nothing to do with stimulus. It has nothing to do with recovery.”
But even as Congressional leaders and top White House officials went through the package with a carving knife, it was clear that the three Republicans who agreed to support the bill in the Senate wielded extraordinary power, and along with conservative Democrats, had put a firm stamp on the stimulus package.
The lessons from the stimulus legislative process are clear. The question now, in the context of the current battle for health care reform and the public option, is whether the Democratic leadership and the White House have learned those lessons. Or will they allow the perverse conceit of the centrists to win out over the interests of the American people?
The unemployment crisis continues to deepen. Another 466,000 Americans joined the ranks of the unemployed last month. Right now more Americans are unemployed than ever before, even more than in 1933 at the depths of the Great Depression.
According to the August employment report from the Bureau of Labor Statistics “the number of unemployed persons increased by 466,000 to 14.9 million, and the unemployment rate rose by 0.3 percentage point to 9.7 percent.”
Another 2.3 million Americans are unemployed but aren’t counted because they hadn’t sought work in the last four weeks. Add this group to both the labor force and unemployment totals, and the number of unemployed Americans is actually 17.2 million — with the actual unemployment rate at 11 percent.
Another 9.1 million Americans are underemployed, reports the BLS, “working part time because their hours had been cut back or because they were unable to find a full-time job.” Add this group and the unemployed and underemployed number 26.3 million Americans — nearly 17 percent of the work force.
In an interview last Friday on The Ed Show on MSNBC, Nobel prize economist Joseph Stiglitz, professor at Columbia University, said:
“There’s absolutely no reason why we need to accept a situation where people who want to look for a job can’t get it. We have so many needs in our country. And this situation where we have people looking for jobs, and we have so many needs — I think we should view as unacceptable.”
Prof. Stiglitz is one of an impressive list of leading economists, compiled by the Center for Economic and Policy Research, who’ve said the February 2009 stimulus was too small, or have since called for another round to fuel job-creating recovery.
It is crystal clear that urgent action from the federal government is needed to boost economic growth and jobs, and invest in America’s future: we need a second installment on the Obama Administration’s economic recovery program, and this second installment must focus like a laser beam on job creation.
Our growth model in recent decades—debt-financed consumer spending and asset bubbles, combined with huge trade deficits—has failed. We cannot borrow and outsource our way to prosperity: without good jobs in America, there will be no sustainable economic recovery. As private demand pulls back and Americans rebuild their savings, the most effective path to sustainable growth is an ambitious public investment agenda.
There is no viable alternative to public investment right now.
The policy statement also calls for extending unemployment benefits immediately, increasing food stamp spending to help families in need, providing additional aid to state and local governments to offset budget cuts and stem more layoffs, and investing in additional transportation, clean energy and other infrastructure projects.
As the August jobs report shows, the unemployment crisis in America continues to deepen. The day after that report was issued The New York Times lead editorial “Where the Jobs Aren’t” asks:
The question, then, is how bad does it have to get before the Obama administration and Congress make job creation a priority.
Will administration officials and lawmakers fight for new laws to make it easier to form unions, which are especially important in elevating and protecting the jobs of low-income workers? How will professed support for green jobs be translated into a manufacturing policy that promotes good jobs? Will efforts to improve the educational system also include serious efforts to train and retrain people for new jobs?
