So we know the GOP argument. Our debt is a slick chasm that we cannot hope to ascend without a literal “brake slam” on all governmental spending. No additional stimulus, no extensions of unemployment that add to our most “pressing“ danger, the national debt. Those left unaided in these times of woeful deficit find themselves an unfortunate casualty in the name of our future solvency.
Yet while Republicans have seemingly engineered a campaign of “fiscal responsibility” for the 2010 midterm and beyond on the broken backs of America’s displaced workers Democrats have done little to counteract the GOP’s charges or actions. Refusing to dip into excess or unspent stimulus funds (but oh how quickly Democrats will gush about the stimulative effect of unemployment benefits) while also trying their damnedest to avoid pay/go.
Both sides have merit. The GOP is not wrong when they say we are in a deficit danger zone. But this is not novel, not a creation of the “left” as they vocally declare. And while Democrats are without question the party most in line with continued extensions, the party most willing to reach a hand of aid to those imperiled by our times they are also just as dedicated to the view that “emergency” expenditures like the unemployment re-authorization add to the deficit load.
Neither side seeming particularly guided by principles, neither side likely consumed by anything more than political parlor games. It’s like a house on fire with one hydrant and two rival fire houses holding a staring contest with each other to see who gets to put out the fire while it ravages and burns to smoke and ash.
But what are the true costs of inaction beyond the human travesties that are well documented and already understood by most anyone not seeking elected office in November? The American economy is not in a stable way, 125,000 more jobs lost in June thanks to the departure of nearly 225,000 temporary census jobs with a modest nationwide increase of 83,000 private jobs, far shy of the 125,000 new jobs needed each month to stabilize unemployment (without taking into account those that have simply fallen out of the labor market entirely). We are, according to the Bureau of Labor Statistics, 7.9 million private sector jobs down from our mark in December 2007.
The aforementioned stimulative effect of unemployment benefits has been well represented but allow me to pile on.
“It is also important that policymakers provide emergency benefits to those who will lose their jobs this year. No form of the fiscal stimulus has proved more effective during the past two years than emergency UI benefits, providing a bang for the buck of 1.61—that is, for every $1 in UI benefits, GDP one year later is increased by an estimated $1.61. This economic boost is large because financially stressed unemployed workers spend benefits quickly, as opposed to saving them. This was particularly important during the depths of the recession when consumers had aggressively cut spending. While consumer spending has since notably improved, it remains fragile and would likely weaken again if emergency UI benefits are not extended. The recovery would struggle to evolve into an expansion as anticipated.”-Prepared Congressional testimony April 14, 2010 Mark Zandi, Chief Economist Moody’s Analytics
In addition to his remarks on the stimulative effect of unemployment benefits Mr. Zandi (a former adviser for Sen. John McCain) also sheds a light on the prospect of growth within the private sector.
“The preconditions for even stronger underlying job growth in the months ahead are falling into place. Most important is the rebound in corporate profits, which has occurred as businesses have successfully lowered their costs. Unit labor costs are falling at their fastest pace on record, fueled by surging productivity and tepid compensation growth. Interest expenses are declining, given corporate de-leveraging and low borrowing rates. And rents are down as commercial real estate markets find themselves awash in vacant space. Although firms are constrained in their ability to raise prices, margins have widened; combined with better sales, this has juiced up profits—a necessary precursor to private sector job growth. Historically, the trend in corporate profits has led the trend in U.S. employment by six to 12 months.”
Two and a half months past those remarks and one can see that “history” is not on pace to repeat itself. The June jobs report indicates a profound hesitancy among private sector employers to risk the safety of reborn profits for the sake of expansion in these still unstable times, with tax credits and low-interest rates failing to adequately light the spark.
Now I won’t dispute the wisdom of the GOP’s “tax cut” clarion call. The administration and the Democratically controlled Congress has been slow to offer the kind of incentive that truly drives job creation. But while the GOP maintains an “either/or” attitude toward stimulus and the Democrats almost regard business as an afterthought we still find ourselves mired deeply in a slow crawl toward a recovery that many will never fully enjoy.
The facts are indisputable: nearly 15 million people are still unemployed in this country, with hundreds of thousands completely maxed out of their benefits and more than one million more watching and waiting for action absent any income, without any relief as the Senate scuffles and postures momentarily delaying their pissing contest for yet another vacation. The number grows week by week, likely sitting at around 2 million without benefits or a lifeline, their hunt for employment hampered by at least 5 to 1 odds for every open job.
Those lucky enough to receive benefits also find themselves painfully aware of the present systems inadequacy with the average unemployment period lasting 35 weeks and the current maximum benefit period for someone newly unemployed within the last 6 months sitting at 26 weeks. A 9 week deficit that can, under the right circumstances, forever destroy a life. Homes, groceries, and utilities all thrown into question, the notion of someone willfully engaging in this kind of whole life “Russian Roulette” comical when weighing the inherent difficulty in finding work and the unstable and insufficient status of unemployment funds.
These facts are undeniable, frightening, and at the moment seemingly of little concern to Congress as demonstrated by the bodies inaction and ignorance. But beyond the black and white exists the speculative damage of a stagnant economy and continued under and unfunded unemployment. Retirement and education funds necessarily raided for survival affecting the future stability of the young and old. More mortgage defaults, more personal bankruptcies, and a smaller pool of qualified lendees spurring a “credit crunch” aftershock. A flurry of potential negative effects and yet a mountain of objection to the methods that seek to wash them all away.
But what about the deficit?
The deficit is of course at the core of that “mountain” standing in the way of any extension or stimulus. Yes, debt is bad. But not all bad. In fact our national debt with its rabid complexities offers itself as a risk free asset that enhances investment, staves off deflation, and provides a truly marketable platform for partisan obstructionists who have nothing else to run on.
Is it large and unyielding? Certainly, the national debt is bulbous but it’s not “out of control” with a side of “oh my gosh the sky is falling!”. Indeed while servicing the debt is in a word, “prohibitive” according to economist Zachary Karabell it is “not much different in inflation-adjusted terms from what servicing cost 20 years ago, especially relative to GDP”.
Still while the debt has its benefits it does beg for a more responsible course that respects not merely our fiscal future but our present struggle, in short we can’t get to that “shining city upon a hill” without a bridge to somewhere. We can’t get to that promised future without continued investment, painful, debt widening investment in our present.
Noted Economist, Berkeley Professor, and former Clinton Administration Labor Secretary Robert Reich had this to say when I reached him for comment:
“The issue is not the debt per se but the ratio of debt to the total economy (GDP). In the short-term (next one to three years), it would be folly to try to pay down the national debt, because government spending is needed to get the economy growing nicely again. If we reduced the debt, we’d slow economic growth and risk another recession, ending up with a worse ratio of debt to GDP than we have now. But in the longer term (five to ten years from now), it would be folly not to address the widening ratio of debt to GDP. Mainly, we’ll need to raise taxes on the wealthy, cut military spending, and slow the growth of Medicare.”
Fellow Economist Paul Krugman seems to agree warning of the consequences of rabid fiscal conservatism. Indicating that we are not merely on the cusp of a relapse but perhaps in the midst of a global depression:
“ We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.
And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: The recession brought on by the financial crisis arguably ended last summer.
But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.
In the face of this grim picture, you might have expected policymakers to realize that they haven’t yet done enough to promote recovery. But no: Over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.”-Paul Krugman, New York Times, June 28,1010.
While I believe Mr. Krugman is mistaken in his characterization that a “Depression” is already upon us his words do have validity and should be taken as a warning of a reality not far off. A reality that should be familiar to any student of history capable of recognizing our hazardous walk through the footprints of our past mistakes and our seeming inability to learn from those mistakes.
Alvin Toffler said it best, “the illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn”. As we sit and watch, as we ignore the words of people like Mr. Zandi, Secretary Reich, and Mr. Krugman denying the legitimacy of numbers and facts as some of us are prone to do in an effort to smooth out uneven rhetoric we must recognize the danger of our actions.
So many factions predict doom but so few are accurate in the quality and cause of that doom and as truth is strangled in the web of “facts” (to paraphrase Paul Eldridge) we must heed the text of our past transgressions always aware of our previous sins and unwilling to follow back down that path. History repeats itself unless we stand up and forcibly shake it from its axis, and if we continue to seed the fields of financial destruction with cinched belts and unyielding cruelty toward those that have fallen hardest we are destined to fail in that effort, a nation too concerned with the far off lightning to notice the hurricane beating down it’s door.