WILLIAM GALSTON AUGUST 13, 2009
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While the attention of politicians, pundits, and the people is focused on the increasingly bitter debate over health insurance reform, economic developments will have a more profound effect on the well-being of the nation and the fortunes of the Obama administration. Only an economy that provides a steady stream of new jobs and raises personal income can yield enough revenue to restore public confidence and finance the government we need.
As the economy struggles to stabilize, we find ourselves in a deep hole--even deeper than we knew. For the first time since the Great Depression, Floyd Norris reports that we have endured a decade with no private sector employment growth. In July 1999, there were 109 million Americans with jobs in the private sector; the comparable figure for July 2009 was ... 109 million. By contrast, at the depth of the 1981-82 recession, private sector job creation over the previous decade still averaged about 1.5 percent per year. Until the current downturn, Norris finds, the long-term annual growth rate for private sector jobs had not gone below 1 percent for nearly half a century.
Some parts of the private sector did much worse. Manufacturing employment, which stood at 18.4 million in July of 1999, plunged to 11.8 million--a 36 percent loss.
What can we expect over the next few years? Although there are many imponderables, a few things seem clear. Household debt, which peaked in 2007 around 130 percent of disposable income (almost twice the 1985 level), must come down substantially. Household wealth, which has taken a $14 trillion hit over the past 18 months, must be rebuilt. To do this, the savings rate, which dipped below zero in the middle of this decade, will have to rise substantially, and consumer spending, which propelled economic growth for much of the past two decades, will constitute a lower share of GDP. We will have to grow the old-fashioned way, through productive investment in innovation and human beings rather than with money borrowed for current consumption. The economic gears are likely to grind for some time before they shift. Growth and job generation will probably be slower than in recent decades until we complete the transition to a post-consumer economy.
There's no consensus on this point, however. Writing in The Wall Street Journal, Justin Lahart argues that employment is likely to recover more rapidly from this recession than it did in the previous two downturns. His reason: So many of the lost jobs have been in the service sector, which has a more pressing need than manufacturers to rehire workers as demand recovers. Moreover, the historical record suggests that the economy bounces back faster from steep recessions than from shallower ones. In the previous edition of the WSJ, Zachary Karabell suggested just the reverse: Larger companies benefit from their ability to focus on where the growth is or is likely to be. "As these companies profit from global expansion and greater efficiency," he says, "they have little or no reason to rehire fired workers, or to expand their work force in a U. S. that is barely growing."
Lahart and Karabell could both be right, of course--Lahart in the short term, Karabell in the long run. And in fact, a number of economists are raising their estimates for the next two or three quarters while predicting slow growth (2 percent or so) after that.
This is not a happy forecast, either for the country or for the Obama administration. It would mean stubbornly high unemployment, meager increases in disposable income, and continued revenue shortfalls at every level of government--hardly the formula for a contented citizenry in 2012, or for a comfortable reelection campaign.
In this challenging context, the president would be well advised to focus more on the economy over the next three years, and to persuade average Americans that the economy is as central to his concerns as is it to theirs. That means taking what he can get on health care and climate change and clearing the decks well before the end of the year. It means going on the road to highlight the job-creating results of the stimulus bill, with events each week for as long as it takes to make the sale. And it means crafting proposals design to stimulate new hiring, not just in the long run, but as soon as possible. A revenue-neutral swap of lower payroll taxes in return for broadening the base of the income tax code could command support even among some Republicans.
A jobless recovery helped undermine George H. W. Bush's reelection prospects in 1992. Its continuation weakened support for Bill Clinton's economic program and contributed to the Democratic Party's rout in 1994. If President Obama's political team is as good at governing as it was at campaigning, it will get on the jobs case--starting now.
12 comments
I agree with Galston 95%. What's interesting is how much the 2010 elections might mean for 2012 - if we see several good quarters of economic growth heading into the third quarter of 2010, it would mean that Republicans won't have much traction in the House and will lose even more seats in the Senate. While that might just make the Teabagger Base ever more desperate and shrill, it would also have the effect of demoralizing Republican candidates and donors for the 2012 elections. That way, even if the country settles into a jobless recovery by 2011 and things are not appreciably better in 2012 than they were in 2010, Obama would still be handily reelected against an underfunded and uninspiring Republican opponent, and Democratic majorities in the House and Senate likely won't be hurt that much. At that point, Republicans might want to start charting a new course to make a serious comeback in 2014.
- wildboy
August 14, 2009 at 11:08am
Wonderful piece. Of course Obama should have concentrated on the economy. But I don't believe that choice was ever realistically available. The Democratic base demanded action on long term agenda items regardless of the economic realities.
The Republicans do exactly the same. Their base's obsession with top marginal tax rates and the "death tax" contributed greatly to the fiscal record that brought their (my) party low in 2006 and 2008.
Cap and Trade illustrates the problem. As noted in an article in the online WSJ yesterday, the economists who originated the cap and trade concept no longer feel it has the utility current day proponents claim. Even true believers ought to wonder when passing a bill requires that major polluters get free credits rather than paying for them. But true believers never wonder, whether they are Democrats or Republicans, liberals or conservatives.
- lsernoff
August 14, 2009 at 11:16am
I diagree with Galston 95%. Controlling health care costs is essential to economic recovery. Passing universal basic health care is as essential for our democracy today as was passing social security to our democracy 70 years ago.
- gbittner
August 14, 2009 at 12:10pm
Trouble is, gbittner, that exactly none of 5 (!) bills controls costs. Therein lies the problem, no?
lsernoff - exactly so.
- butchie b
August 14, 2009 at 1:47pm
Butchie.. i suspect that your trouble with some of the bills is that they do BEGIN to contol costs... e.g., by public option plan
- gbittner
August 14, 2009 at 2:40pm
lsernoff: I also saw the article re "cap and trade". The originator of the concept, whose name escapes me, was pointing out that it works basically for localized problems, such as acid rain. However, trying to implement cap and trade in parts of the world while the rest of the workd ignores the concept is the problem and why it probably will not work on a global basis. But then his suggesting a carbon tax would be more effective appears to suffer from the same problems.
The real question is how much longer climate change and health care reform can be postponed?
- tpinter
August 14, 2009 at 4:13pm
tpinter: I sheepishly confess that I lack the computer skill to link a story from another publication onto this blog. So I am stuck with calling your attention to another piece from the online WSJ. Brett Arends' ROI column (under Personal Finance) documents more graphically than I have seen heretofore the fact that the health insurance companies are not very profitable, and the reason is they can't seem to control the costs laid on by providers.
This links back to the original point I made in this thread: the bases control the agenda. The liberal base's message is that insurers are rapacious (Rockefeller) or villains (Pelosi). The conservative base fulminates about "death panels" (Palin et al). Neither base is interested in addressing the issues rationally; their real interest is political warfare.
To answer the question you posed, I think we could wait a bit longer to address health and the environment. I would like to hope that additional information might guides us in the direction of sensible progress; I wish I could be optimistic that the bases and their parrots in the media would help us all find reason, but I doubt they will find that to be in their interest.
- lsernoff
August 14, 2009 at 5:46pm
tpinter: I sheepishly confess that I lack the computer skill to link a story from another publication onto this blog. So I am stuck with calling your attention to another piece from the online WSJ. Brett Arends' ROI column (under Personal Finance) documents more graphically than I have seen heretofore the fact that the health insurance companies are not very profitable, and the reason is they can't seem to control the costs laid on by providers.
This links back to the original point I made in this thread: the bases control the agenda. The liberal base's message is that insurers are rapacious (Rockefeller) or villains (Pelosi). The conservative base fulminates about "death panels" (Palin et al). Neither base is interested in addressing the issues rationally; their real interest is political warfare.
To answer the question you posed, I think we could wait a bit longer to address health and the environment. I would like to hope that additional information might guides us in the direction of sensible progress; I wish I could be optimistic that the bases and their parrots in the media would help us all find reason, but I doubt they will find that to be in their interest.
- lsernoff
August 14, 2009 at 5:52pm
"Floyd Norris reports that we have endured a decade with no private sector employment growth. In July 1999, there were 109 million Americans with jobs in the private sector; the comparable figure for July 2009 was ... 109 million." What a shock!!
Some fields have gained jobs, remarkably: education, healthcare, the white collar professions, certain service sectors. Without a serious national infrastructure overhaul, absorbing great numbers of blue collar workers, we will pay an enormous price in increased alchohalism, drug dependency, broken families, crime increases and the like. Emergency job creation for new infrastructure (modern rail, civil construction projects, school expansion nationwide, just a few examples) need to be a front burner priority, if the Democrats are to maintain their base and majorities. The country's future looks problematic with this terrible level of unemployment and stagnation.
- LawrenceGulotta
August 14, 2009 at 6:41pm
E' sempre l'economia, stupid Memo al Team Obama: tutto ruota all'economia, ieri come domani. Meglio, tutto dipende dai posti di lavoro, e negli Stati Uniti son rimasti gli stessi,109 milioni, di 10 anni fa. www.andreamollica.blogspot.com
- Anonymous
August 15, 2009 at 12:27am
Bill Galston, how unbelievably short-sighted and mono-visioned of you.You have, in the past, been a bigger thinker than this, as Obama is. His stimulus package is the blue print: shovel ready projects for immediate cash infusion while investing in our future - like education, health care, green jobs, etc in order to sustain the growth over the long haul.
Of course the health of the economy is partly based on reforming the health care industry and getting a handle cost. There is so much inefficiency in the system and cost waste, especially for business - small businesses as we know are the engine of our economy - that without increasing efficiency our economy will continue to be sluggish. Of course, single-payer is the most efficient form of insurance, but that's another argument for another day and hopefully we'll get there.
Building a "green" economy on the rubble of the manufacturing demise will be a huge boon to blue collar workers - and of course, part of that will be getting the car companies to focus their energies on building more fuel efficient cars to built by auto workers. But building wind farms, converting homes to more energy efficient technologies, windows, doors, etc will also be good for blue collar workers displaced by our manufacturing system. In other words, we are investing in the future of our manufacturing industry that will help the economy and create jobs.
And so on...it is all interconnected - can't do anything in a vacuum as your post is suggesting.
- mcgumbleton
August 15, 2009 at 3:03pm
LawrenceGulotta, I agree that a country without a manufacturing base is in a lot of trouble, but I am not sure about the significance of the 109 million figure. America has the greatest agricultural base in the world, but has few agricultural workers, if we could replicate those extraordinary productive gains in the manufacturing sector, the rest of the economy would benefit. I do wonder what will happen with increasing mechanization and robotics in the future, what jobs people would migrate to but I am not as pessimistic as you.
lsernoff, I agree with your first half of you first post, but disagree about Cap and Trade, for one, it has not even passed the Senate, and two, it is pretty watered down, and three, it really has not caught on with the masses, the Republicans get little traction railing against it. I do agree with mcg as to the importance of a green economy, I disagree with him that it will be built on the demise of the manufacturing base since I think it is part of the manufacturing base, and can perhaps present the type of jobs blue collars will migrate to, servicing wind mill farms and solar mill farms will require a fair amount of man power.
- blackton
August 16, 2009 at 4:23pm