The unemployment rate is too damn high, and all that America's politicians can talk about is the budget deficit. If only they knew that we can take care of both of them at once.
Friday's unemployment report, showing joblessness still stubbornly high, makes the absolute insanity of Washington's deficit obsession even plainer.
In fact, unemployment and deficits are very much related, or at least correlated, as you can see from this chart, which shows the budget deficit as a percentage of GDP (represented by the green line) vs. the unemployment rate (blue line), going back for the past 65 years. (h/t Joe Weisenthal at Business Insider)
Notice anything? Like, how every time unemployment rises, the budget deficit also rises? And how every time unemployment falls, the budget deficit also falls?
Why could this be? For one thing, the budget deficit is largely a function of the government's inability to collect enough tax revenue from unemployed people. If we can just get those people back to work, then the government will get more revenue, and the deficit will shrink.
Meantime, a lot of the evil government spending that makes the ghost of Calvin Coolidge cry is designed to help carry people through prolonged unemployment and also maybe find new jobs. You know, the social contract. As people find more jobs, some of that spending goes away, as if by magic.
In fact, you can see that has already started to happen -- despite Washington's state of near-panic over the deficit, it has actually been falling steadily since the recession. What else has been falling? You guessed it, the unemployment rate.
Both are still way too high. The unemployment rate was 7.8 percent in December, the Bureau of Labor Statistics reported on Friday. It was 7.8 percent in November. Job growth has averaged 153,000 per month for the past two years, just barely enough to keep up with regular growth in the labor force.
At this pace, it will take another eight years or more to get back to "full" employment, recovering the 4 million jobs we lost in the recession and adding another 5 million that we should have generated to match population growth, according to the left-leading Economic Policy Institute.
Meanwhile, 1.5 million people have been out of work 99 weeks or more, and 4.8 million have been unemployed 27 weeks or more. The longer these people stay unemployed, the more their skills deteriorate, and the less productive our economy is. Prolonged unemployment is going to make it even harder to grow the economy and shrink the deficit in the future.
But instead of doing anything at all to reduce unemployment, Washington has spent the past several months and all of its energy obsessed with the budget deficit. This has led to a series of increasingly self-created and self-destructive crises, including the recent self-created fiscal-cliff fiasco, the solution to which is going to hurt the economy and job growth this year, making our unemployment problem worse.
Up next is the self-created and self-destructive debate about whether America should pay its debts, or instead hold the global economy hostage to extract some spending cuts out of the government.
The deficit obsessives argue that the only prescription for America's economic woes is more austerity, ignoring the effects austerity has had on economies throughout Europe. As Weisenthal points out, stabs at austerity in Japan actually made that country's deficit problem worse. Maybe you just can't fix your deficits when your economy is a purple smear and millions are unemployed.
Washington should end its deficit fixation and turn its attention to fixing the easier problem -- unemployment, even if it means a little bit more deficit spending in the short run. It might find that it takes care of both problems that way. Otherwise, we'll get more austerity, and more unemployment, and a tougher deficit problem in the long run.