Job creation requires spending
Economists across the political spectrum get it
Anxiety among employed and unemployed Americans alike over weak demand for their labor should concentrate the minds of Congress when they return to work today. Job growth is at a standstill, unemployment is high, wages are falling, and our economy is stagnant. Congress can take steps that would address all of these problems—and the Obama administration must push it to do so.
There is broad consensus among economists of different political persuasions that the time to do so is now. A range of economists and independent forecasters say boosting the economy and getting people back to work should be job number one for Congress and that ideological objectives should be set aside until that’s been accomplished.
The stakes are high. Economists are coming to the conclusion that without fiscal action, the economy may not continue to recover. According to JPMorgan Chase & Co.’s economists, “The U.S. and Europe are dangerously close to recession. … the most critical period for the US economy will likely be 4Q11, when we may see some fallout from the heightened volatility of risk markets, and 1Q12, when we get an automatic tightening fiscal policy if, as our US team currently assumes, this year’s fiscal stimulus measures will expire.”
This sentiment is echoed by Christine Lagarde, the newly appointed managing director of the International Monetary Fund, who said in late August, “Developments this summer have indicated we are in a dangerous new phase. The stakes are clear: we risk seeing the fragile recovery derailed. So we must act now.”
Standing in the way of action is the Republican leadership in the House of Representatives, which is too caught up in its extreme ideology-driven agenda to see what needs to be done. They want to follow the lead of Europe and implement severe cuts in public spending and lay off workers in the middle of the biggest jobs crisis in decades.
That’s not the right remedy at all, according to those whose job it is to follow the U.S. economy. Over the past two months, broad, widespread agreement has emerged that the action needed now is not cuts in public spending but measures to address the shortfall in aggregate demand in the economy to include boosts in government spending. Here’s what this wide array of economists is saying:
Simply put, across the spectrum, there is agreement that “it’s the aggregate demand, stupid.” This blunt quote isn’t from the Keynes-reading, Nobel Prize-winning economist and blogger Paul Krugman, but rather Bruce Bartlett, columnist for The Fiscal Times who held high-ranking economic positions in both the Ronald Reagan and George H.W. Bush administrations.
Krugman himself has said, “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 as a wide range of experts have recognized, the key variable in demand right now is how much the federal government spends. The last thing our economy needs is cuts in public spending. While not every individual quoted above would support huge increases in public spending, most believe some are needed and none believes that real cuts are the order of the day.
In short, there is a broad consensus that deficit reduction can wait until after we deliver the boost our economy needs today.
Usually, politicians would know from their constituents that job creation is the top issue in their lives. Without a job, most families cannot afford all the other things that are important to them—a roof over their head, food on the table, or a good education for their children. Earnings from employment make up about 80 percent of the income for families earning less than $100,000 per year, and most workers are family breadwinners or co-breadwinners.
Yet last month the Tea Party-inspired right wing of the House of Representatives hijacked the congressional agenda to worsen the jobs situation. Last month, for example, House Republican leaders held up reauthorization of the Federal Aviation Administration, a move that led to the immediate furlough of 4,000 government workers and another 70,000 construction employees and halted much-needed investments in our air transport system. This is exactly the wrong policy at the wrong time. What’s needed is the exact opposite—just ask the wide range of economic observers who say so.
This article was published by the Center for American Progress.