One thing that both liberals and conservatives seem to agree on is that America needs to create more jobs and reduce the ranks of the unemployed. Unfortunately, how to create those jobs and what the government’s role should be continues to be a source of friction and animosity between the far right and the far left. President Obama, who made job creation one of the main themes of his campaign, finds himself on the horns of a dilemma as he tries to find policies that promote economic growth and create jobs and simultaneously tries to find ways to reduce the governments spiraling deficit [“Debate on Creating Jobs, Without Raising Deficit,” by Jackie Calmes, New York Times, 30 November 2009]. Democrats are trying to find ways of creating jobs before next year’s mid-term election so that they can remain in power while Republicans (knowing jobs will be a campaign issue) are content to see the unemployment rate remain high until after the election. Calmes reports:
“As Democrats renew their push to create jobs, they are at odds over the timing, cost and scope of additional measures, with the White House’s concern about high budget deficits pitted against the eagerness of many in Congress to spur hiring before next year’s elections. … Congressional Democrats return from a holiday break intent on packaging new proposals for tax incentives and construction projects to promote employment, with the House, where every member is up for re-election next year, on a much faster track than the Senate or the White House. While the political rationale for additional government action is clear, it is an open question whether it would have any substantial economic effect.” … With joblessness, which stood at 10.2 percent in October, likely to remain high through 2010 even as the economy recovers, the stage is set for what could be a yearlong tussle between deficit reduction and government incentives for job creation, and between the politics of Wall Street and Main Street. ‘There’s sort of an anomaly here — people want us to do stuff on jobs but they don’t want to see a lot of government spending,’ said Senator Charles E. Schumer, Democrat of New York.”
According to Calmes, Congressional leaders “say the House will pass a bill … that could include a tax credit for new hires, added incentives for credit to small businesses and at least a short-term extension of transportation construction spending.” The Senate will not likely take up the legislation until after the Christmas holidays because they are embroiled in debates over health care. In addition to tax breaks for hiring new employees, “Senator Jack Reed, Democrat of Rhode Island, has proposed having the government share some employers’ labor costs temporarily so businesses [can] avoid layoffs. Based on programs already under way in 17 states, the plan would cost an estimated $600 million. Another proposal would give businesses a tax credit equal to a percentage of any expansion in their payrolls.” A program similar to the one proposed by Senator Reed has helped Germany keep its unemployment rate in check. The problem with such programs is that once they’re started they are difficult to stop. President Obama, who already owns the record for largest single year budget deficit in U.S. history, is rightfully hesitant to add to that total. Calmes reports:
“White House officials say they remain open to a variety of ideas. But they have also signaled that Mr. Obama’s willingness to back any expensive new government programs is limited. One official said Mr. Obama’s announcement of the jobs forum was ‘carefully crafted’ to emphasize that generally the ‘government has done what it can. It’s time to hear from the private sector about what it’s going to do.’ Administration officials have told Democrats that the president’s State of the Union in January and his subsequent budget for the 2011 fiscal year will focus on long-range plans to begin bringing down the deficit. As the administration and many economists point out, nearly three-quarters of the $787 billion stimulus package remains in the pipeline and thousands of job-creating projects are just getting under way. Yet Democrats in Congress are under pressure to do more from liberal economists, constituents and labor unions.”
Calmes notes that traditionally liberal organizations want the government to do more, fearing that the private sector will continue to focus on force reductions rather than new hiring.
“The liberal Economic Policy Institute and the A.F.L.-C.I.O. have released similar five-point plans for about $400 billion in additional unemployment assistance, infrastructure spending, aid to state and local governments to avoid layoffs of teachers and other employees, and a public employment initiative for short-term community jobs, like crews to clean up areas newly blighted by foreclosures. … Both groups would offset the proposed costs elsewhere in the federal budget. While stimulus measures usually are not ‘paid for’ by spending cuts or tax increases since that would defeat the purpose of pumping money into the economy, the fact that even liberal groups now are suggesting ways to avoid adding to the deficit shows widespread acceptance of the political if not economic danger of adding to the ever-growing national debt.”
On the conservative side, there is a lot of rhetoric but few ideas being proposed. “Congressional Republicans are likely to oppose new programs, aides say. ‘Families are asking, “Where are the jobs?” but all they are getting from out-of-touch Washington Democrats is more spending and more debt piled on our kids and grandkids,’ Representative John A. Boehner of Ohio, the House Republican leader, wrote on a blog recently.” Apparently, Boehner didn’t offer any ideas that Calmes thought worthy of mention in the article. Another liberal calling for an emergency jobs program is Nobel laureate Paul Krugman [“The Jobs Imperative,” New York Times, 30 November 2009]. He writes:
“If you’re looking for a job right now, your prospects are terrible. There are six times as many Americans seeking work as there are job openings, and the average duration of unemployment — the time the average job-seeker has spent looking for work — is more than six months, the highest level since the 1930s.”
That helps explain why the current crisis has been dubbed the Great Recession. Krugman continues:
“You might think, then, that doing something about the employment situation would be a top policy priority. But now that total financial collapse has been averted, all the urgency seems to have vanished from policy discussion, replaced by a strange passivity. There’s a pervasive sense in Washington that nothing more can or should be done, that we should just wait for the economic recovery to trickle down to workers. This is wrong and unacceptable.”
Krugman notes that unemployment could remain above the 8 percent level until 2012 if something is not done. While that is not good news, Krugman says the news only gets worse.
“Damage from sustained high unemployment will last much longer. The long-term unemployed can lose their skills, and even when the economy recovers they tend to have difficulty finding a job, because they’re regarded as poor risks by potential employers. Meanwhile, students who graduate into a poor labor market start their careers at a huge disadvantage — and pay a price in lower earnings for their whole working lives. Failure to act on unemployment isn’t just cruel, it’s short-sighted. So it’s time for an emergency jobs program.”
Krugman has long argued that the stimulus program passed by Congress was simply not ambitious enough. Had it been, he claims, unemployment would not be the concern it now is. As the above discussion about the deficit highlights, passing any new stimulus package — even a jobs package — is going to be difficult. Although Krugman seems fairly dismissive about the deficit, there is reason for concern. Investors and analysts are alarmed by debt problems in Eastern Europe, in Ireland and in Greece. Dubai’s excessive debt is also a problem (see my post entitled Dubai and Debt). The U.S. public debt is forecast to rise to around 80 percent, from about 40 percent, of gross domestic product. Nevertheless, Krugman asserts that a jobs package could be created at a discounted cost. He continues:
“Our best hope now is for a somewhat cheaper program that generates more jobs for the buck. Such a program should shy away from measures, like general tax cuts, that at best lead only indirectly to job creation, with many possible disconnects along the way. Instead, it should consist of measures that more or less directly save or add jobs. One such measure would be another round of aid to beleaguered state and local governments, which have seen their tax receipts plunge and which, unlike the federal government, can’t borrow to cover a temporary shortfall. More aid would help avoid both a drastic worsening of public services (especially education) and the elimination of hundreds of thousands of jobs. Meanwhile, the federal government could provide jobs by … providing jobs. It’s time for at least a small-scale version of the New Deal’s Works Progress Administration, one that would offer relatively low-paying (but much better than nothing) public-service employment. There would be accusations that the government was creating make-work jobs, but the W.P.A. left many solid achievements in its wake. … Finally, we can offer businesses direct incentives for employment. It’s probably too late for a job-conserving program, like the highly successful subsidy Germany offered to employers who maintained their work forces. But employers could be encouraged to add workers as the economy expands. The Economic Policy Institute proposes a tax credit for employers who increase their payrolls, which is certainly worth trying. All of this would cost money, probably several hundred billion dollars, and raise the budget deficit in the short run. But this has to be weighed against the high cost of inaction in the face of a social and economic emergency.”
Except for complaining about the lack of jobs created by the stimulus package, conservatives remain eerily silent on the subject of job creation. As the job summit meets this week, I hope that participants don’t forget about the important role of entrepreneurs and small business owners in getting the economy back on its feet. It was the big corporations and financial institutions that created the morass we’re in. Yet small and medium sized businesses remain the lifeblood of the American economy. Jobs (or lack of them) are what put a face on the current economic crisis. Technically, analysts point out, we are recovering from the recession; but the unemployed are interested in jobs, not technicalities. Until people are back to work, the Great Recession won’t be over.