We need a bold jobs plan, but Obama shies away
History has shown that the US government needs to boost spending to rise out of a downturn. But with the 2012 election on the horizon, the White House hesitates to take the political risk.
Americans are deeply confused about why the economy is so bad – and their President isn’t telling them. In fact, the White House apparently has decided to join with Republicans and blame it on the long-term budget deficit.Skip to next paragraph
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Before I turn to the President, though, let’s be clear: The lousy economy is due to insufficient demand. Consumers – who are 70 percent of the economy — can’t and won’t buy because they’re running out of cash. They can’t borrow against homes that are worth a third less than they were five years ago, and most consumers are bad credit risks anyway because they’re losing their jobs and their wages are dropping. They also have to start saving for the kids’ college or for retirement, which will cut their spending even more.
Without enough consumers, businesses won’t hire enough people and pay them enough to reverse the vicious cycle. So we’re dead in the water. Even the stock market has caught on to the truth.
Which means government has to step in to boost the economy – as it has every time the economy has fallen into recession over the last eight downturns. Include the massive spending on World War II that lifted us out of the Great Recession, and it’s nine. The Fed can help, but it can’t do it alone. And it’s least helpful after a huge asset bubble has burst because the financial system won’t channel low interest rates where they’re most needed – to small businesses and average consumers.
This time we tried one stimulus that was way too small relative to the size of the falloff in demand that started in 2008 — especially given that states and locales cut their spending by almost as much as the federal government increased it.
So we need another – a bold jobs plan. (I’ve offered an outline of what it might look like in prior posts.)
Which gets me to the President. Even though the President’s two former top economic advisors (Larry Summers and Christy Roemer) have called for a major fiscal boost to the economy, the President has remained mum. Why?
I’m told White House political operatives are against a bold jobs plan. They believe the only jobs plan that could get through Congress would be so watered down as to have almost no impact by Election Day. They also worry the public wouldn’t understand how more government spending in the near term can be consistent with long-term deficit reduction. And they fear Republicans would use any such initiative to further bash Obama as a big spender.
So rather than fight for a bold jobs plan, the White House has apparently decided it’s politically wiser to continue fighting about the deficit. The idea is to keep the public focused on the deficit drama – to convince them their current economic woes have something to do with it, decry Washington’s paralysis over fixing it, and then claim victory over whatever outcome emerges from the process recently negotiated to fix it. They hope all this will distract the public’s attention from the President’s failure to do anything about continuing high unemployment and economic anemia.
When I first heard this I didn’t want to believe it. But then I listened to the President’s statement yesterday in the midst of yesterday’s 634-point drop in the Dow.
At a time when the nation’s eyes were on him, seeking an answer to what was happening, he chose not to talk about the need for a bold jobs plan but to talk instead about the budget deficit – as if it were responsible for the terrible economy, including Wall Street’s plunge. He spoke of Standard & Poor’s decision to downgrade the nation’s debt as proof that Washington’s political paralysis over deficit reduction “could do enormous damage to our economy and the world’s,” and said the nation could reduce its deficit and jump-start the economy if there was “political will in Washington.”