If government was willing, the unemployment rate could be as low as 5%

Another month end, another jobs report. On Friday we received the numbers for August and it was both good news and bad news for President Obama. The good news is that the economy added 163,000 jobs in July which was well above analyst expectations. The bad news is that the unemployment rate ticked up from 8.2% to 8.3%. That small of a change in the unemployment rate (in either direction) isn’t really significant, but the unemployment rate could be several whole points lower by now if government did what it always does in a bad economy: spend money.

Yeah, I can hear it now. Conservatives and even centrists are going to say that the federal government is already spending too much money. The problem with that assessment is that it’s applying a macro level focus to a micro level problem. In this scenario, the macro level is the long-term federal debt, which is definitely something we need to tackle, but we should tackle it when the economy is doing well, not when tens of millions of Americans are still out of work. The micro level is the current economy, and right now government could be doing a lot more at that micro level to get the economy going and lower the unemployment rate.

At the very least we could have made sure that public sector employment remained unchanged (or even increased) doing this economic downturn. That’s what we have always done in the past. When the economy is bad, the federal government props up the state and local governments to make sure that teachers, firefighters and police officers keep their jobs. It doesn’t do any of us any good to lay these people off during a bad economy (or a good economy), but that is exactly what we have done.

So far 693,000 public sector jobs have been lost and each month that number keeps climbing. The private sector actually added 172,000 jobs last month, but the public sector shed 9,000 for a net gain of 163,000. This has been going on the entire stretch of the Great Recession. Does this sound like a recipe for improving the economy? Why are we still laying off public sector workers? This should be cause for revolt yet I believe most Americans are completely ignorant to these simple facts.

The government could have cut the unemployment rate to as low as 5 percent by now “if we had spent enough to do it,” said Dean Baker, co-director of the left-leaning Center for Economic and Policy Research. A government stimulus focused on hiring workers to repair infrastructure would be “the quickest way” to ease the jobs crisis, he said.

Baker said congressional Republicans supporting austerity are not the only ones to blame. President Barack Obama has not explained to the country why the economy is in crisis and how another stimulus would help. Baker pointed to President Franklin Delano Roosevelt, who explained the Great Depression and how to get out of it during his fireside chats on the radio.

“I don’t think [Obama’s] really tried to do that, and in some ways he’s actually done the opposite,” Baker said. “Now, everyone’s got a TV, most people have the Internet. I just can’t believe that people would have a more difficult time grasping basic economic principles today than they did in the ’30s.” – The Huffington Post

President Obama definitely deserves some of the blame. Given how big of a problem this is, I don’t think Obama has made it the number one priority during much of his first term. Of course that doesn’t mean Mitt Romney would be a better choice for president, as he would support more of the policies that got us into this economic mess in the first place, including less regulation on companies that caused the global financial crisis. And while Obama deserves some blame, congressional Republicans deserve most of it. A couple of years ago it was a cynical observation to say Republicans were intentionally blocking legislation that would improve the economy, but now it’s obvious. Republicans will do whatever it takes to make Obama a one-term president, including intentionally keeping unemployment high.

By blocking Obama’s jobs proposals, congressional Republicans are sabotaging the economy to win the 2012 election, said Daniel Altman, chief economist at Big Think and adjunct economics professor at New York University’s Stern School of Business. — Altman, who traditionally has hewed to the center in his research and writing, said he recently chose to take sides because “one side is just so wrong.” – The Huffington Post

Regardless of whether you believe the federal government is already spending too much money, can you honestly argue in support of the 693,000 public sector job losses? Everyone (conservative or liberal) should have agreed years ago that spending the money necessary to keep those public sector employees on the payroll was the bare minimum. Even if you don’t support stimulus spending on infrastructure projects, keeping people in the jobs they already had should have been common sense. It turns out it wasn’t.

It also turns out that Republicans in congress believe this is to their political advantage. Republicans say government is the problem, and they are proving it.

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Economy

#employment#government#jobs#President Obama#private sector#public sector#Republican#spending#unemployment rate

  • Joe C

    The problem with spending more is that, by definition, America will have to borrow more. If the deficit spending increases, it increases the risk that creditors will no longer see America as being responsible or creditworthy, and therefore will demand a higher interest rate for the privilege to borrow. Eventually, it could get to the point where America cannot afford to continue to borrow at the rate being demanded, and the fiscal cliff that we’re seeing at the end of this year would look like a mole hill relative to what would happen.

    • If not now, when? We know that there are thousands of aging bridges that need to be repaired. We know we have sewer and water mains that are bursting because they are a century old. We know we are behind when it comes to fast, efficient and comprehensive mass-transit. If we want America to compete in the next few decades and beyond, we need to repair and upgrade these things. Our existing infrastructure didn’t get built for free. Did we just think we could build it once and forget about it?

      You speak of the risk that creditors will no longer see America as being responsible or creditworthy. I have to tell you, if America isn’t creditworthy than what is the rest of the world? That is a defeatist attitude, one that conservatives used to charge at liberals, but now it seems the roles are reversed (although in this case I have no idea of your ideology). And when you say creditors, you are largely talking about Americans. We own the majority of our own debt. So yeah, if more people in this country acquire a defeatist, maybe that will be a problem. As long as we believe in this country, we won’t have a credit problem. A sovereign state that can print its own money cannot go bankrupt in the traditional sense.

      And that bring us to inflation. Everybody keeps worrying about inflation, but maybe we should take advantage of the fact that inflation is current in check at the same time that interest rates are historically low. That means the cost for America to borrow money is almost zero, if not negative. There has never been a better time for the United States to spend money to upgrade it’s infrastructure, creating the catalyst for the next big economic decade or decades.

      • Joe C

        If America didn’t have the kind of debt that it had, I would agree with you on just about every point. However, there is only so much that one can borrow before everyone will stop lending to you. I don’t know how far the US is from that point, but it’s a lot closer than I feel comfortable with.

        The first thing that America will need to do is to show that it’s taking the debt issue seriously. Actually coming up with a *plan* to address it would be a start, but I’m already asking too much of your elected representatives by asking that. America needs to show the world that it is bringing its debt problems under control, and only then will people be more confident in lending to it.

        I take, as an example, the United Kingdom (which I remind you still issues its own currency, the pound sterling). A couple of years ago, there was very little confidence in UK debt, with yields north of 5% if memory serves me correctly. Because of the deficit reduction measures that the government has brought in, said yields are now lower than US treasuries. Quite frankly, I don’t understand why we aren’t seeing a rise in the yields of US government debt, because many of the fundamentals are not that different from Greece.

        • If you had asked me before the “great recession” what my opinion was on this topic it would have sounded way different, although the fundamentals would still have been the same. The reason it would have sounded quite different is because I would have put much more emphasis on doing something about the deficit and debt because I do think it is a problem. But that was before the economy drove off a cliff.

          Do I think it’s ideal to add even more debt at this time? No. Do I think we have an alternative? No. My concern is that we never grow out of this current economy, fall back into recession and we just repeat this cycle over and over, each time shedding more and more jobs that are never to be seen again. I consider this a bigger concern right now compared to the national debt.

          There is no question we need to show that we are serious, but the first step would be to NOT have a fiasco like last summer’s debt ceiling nonsense. The most important thing to show the “creditors” is that we are actually willing to pay our debts. Way too many Republicans in the House were willing to let America default on it’s obligations. This is the United States, and we pay our bills. That fiasco is the sole reason our credit rating was downgraded, not because the debt is too high.

          • Joe C

            I think that our fundamental disagreement lies in whether the stimulus or deficit reduction should be a higher priority at this time. I see this as a position on which reasonable people can disagree.

            Personally, I look at countries such as Greece, Italy, Spain, and a couple of years ago, the UK. The policies for all of these countries was to go ahead with stimulus, despite already having very high deficits. As a result of this, the markets lost confidence in these economies, which led interest rates on these debts sky high.

            I agree that Congress shouldn’t be playing the stupid games that they do (if I were eligible to run against them, I probably would). But it’s one thing to intend to pay the bills (as all of the countries I listed above did), it’s another to actually be able to pay them. Right now, the markets seem willing to lend the US money, so it gives us some breathing room. But I don’t know how far we are from the point where confidence in US government debt erodes to the level of Greek or Italian debt. I hope this day never comes, but I fear it’s a possibility if the debt issue is not sorted out in the next couple of years.

          • Indeed, that is the disagreement. Under “normal” circumstances I would agree with you. Coming off the Great Recession, we are not in normal circumstances. We need stimulus to get the economy going. We’ve had over a decade of flat job growth, starting well before the Great Recession set in.

            Rest assured that if the United States becomes Greece then that means the entire world economy will see a bottomless pit that will make the Great Recession look like a trial-run at best. 🙂 Because they are part of the Euro, Greece doesn’t control it’s currency. The United States on the other hand can print it’s own money. Sure, if we keep doing that it will at the very least devalue the dollar and will certainly (eventually) lead to higher inflation (through reduced purchasing power and eventually higher interest rates), but the economy isn’t going to take off without government stimulus. It can do ok, and basically flatline at the current level, but it’s not likely we will get to sustained 250,000 per month job creation (or higher) without another round of stimulus. And it needs to be smart stimulus, not tax cuts. Stuff that actually improves the country for the future.

            As for the policies in Europe, well, austerity is what is putting some of those countries back into recession. Italy, Spain, and more specifically Greece are outliers in my opinion, although that could turn out to not be true. That’s my opinion right now. But since they are on the Euro, they do have a major impact on the other Euro countries. And that is what is creating so much uncertainty across the pond. Will the Eurozone countries cooperate for the good of all, or will individual countries like France and Germany finally put their foot down and say “no more” if other countries start to falter? I don’t pretend to be an expert on this subject, just slightly more clued in than the average person (and I mean just slightly). 🙂