ECONOMY AUGUST 24, 2011
This article is a contribution to 'Is There Anything That Can Be Done? A TNR Symposium On The Economy.' Click here to read other contributions to the series.
Here’s the policy reality facing the president: The economy is stuck in the mud and the American people are losing faith that policy makers can do anything about it. As long as GDP growth is persistently below trend—trend being around 2.5 percent—the unemployment rate won’t be going anywhere good anytime soon. Paychecks, meanwhile, are declining in real terms, so we’re stuck in a cycle where the weak job market hurts household budgets, which trims consumption, which discourages investors.
The only games in town are fiscal or monetary stimulus—there, I said the ‘s’ word—but the president is boxed in, it is said, by three forces: First, he’s got no job-creation bullets left; second, even if he did, and American people don’t believe the government can help on the jobs front (a pathetic 26 percent have confidence in Washington’s ability to solve economic problems); and, third, Republicans in Congress will block any idea he proposes anyway. Thankfully, none of these challenges are as insurmountable as they might seem, and pushing relentlessly to overcome them is the president’s best, and only, chance to change the fundamental direction of the debate, find his footing, and create some momentum for the economy and for himself.
TO BEGIN, the first hurdle—that the government has no more job-creation bullets—is simply false. Despite S&P’s misguided judgment, borrowing costs remain very low for the Federal government. “Bullets,” are cheap, in other words, and virtually every economic indicator is crying out for more fiscal stimulus—not in the form of another large-scale Recovery Act, but in the form of targeted jobs measures.
President Obama’s second obstacle—disbelief that government can help on the jobs front—is a real challenge. He and every other policy maker in Washington have been talking past the public on this issue for months. To make a convincing pivot, he should avoid talking about debt and instead build the case for government’s integral role in the economy right now. Fortunately, there’s lots of evidence that the government can and does create jobs, and not just government jobs. The recent two-week shutdown of the Federal Aviation Administration provides one great and timely example. The shutdown led to furloughs for 4,000 federal workers, sure, but another 70,000 private transportation and construction workers were also laid off of projects they were completing for the agency.
Our states and cities may provide an even more resonant argument right now. Every month, for the past 12 months, the private sector has added jobs (1.8 million), while cities and towns, still in budget-cutting mode, have shed the jobs of teachers, cops, and sanitation workers (340,000). This is creating a needless drag on our economy and preventing job growth from outpacing the growth of the workforce. No matter how stubborn people’s attitudes may seem, the president can’t let public opinion stop him. On this one, he’s got to try to change minds.
Of course, that still leaves Obama with roadblock number three: convincing Congressional conservatives to sign a jobs bill. How can he possibly change those minds? Fact is, he can’t. But neither can he let that reality dictate his path.
Instead, he should develop a tightly focused, resonant jobs agenda which he presents to America as the way forward, from now through the election and beyond. He should tell the people that he’s put the debt ceiling, the budget deficit, baselines, and credit ratings behind him. He knows what families care about right now: their jobs, their paychecks, their living standards.
He’s already been making this case regarding the extension of the payroll tax holiday and unemployment benefits. Those are already in the system, but they expire at the end of this year, and to let them do so would create a dangerous air pocket that we must avoid at all costs (I calculate that, together, these measures could shave 0.6 off of the 2012 unemployment rate—i.e., that rate would be 8.9 percent in the fourth quarter of 2012 without them; 8.3 percent with them).
Then, he should roll out a campaign for a national infrastructure program to repair, retrofit, and modernize the nation’s public schools called FAST!—Fix America’s Schools Today. It’s got important advantages over the president’s infrastructure bank idea; it’s highly visible, can be stood up faster, and it’s more labor intensive, too. Finally, he should tout clean energy investments, as he did recently in Michigan, stressing the opportunities these investments create by replacing contracting industries with new, expanding ones.
“But … but … Congress will block him,” you say. On most of these ideas, probably so, though I’d put the renewal of the payroll tax cut at above 50 percent, and the unemployment insurance extension only slightly below half.
And, as for the rest of his plan, if Obama gets fired up around an agenda anything like the one I’ve outlined, and if he’s very clear about who, precisely, is standing between America and that jobs agenda, I think he’ll not only regain his footing and provide a stark contrast between himself and his opponents, but his fierce advocacy will give the country something to feel good about. And man, we really need that.
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities and the former chief economist to Vice-President Biden. He hosts jaredbernsteinblog.com.