While the Administration and the Republicans and far too much of the commentariat are obsessed with public debt, private debts are killing the recovery. Some 22 percent of mortgages are still under water, and student debt has surpassed a trillion dollars. Banks can unload their toxic securities onto the Fed. Corporations can use the bankruptcy code's Chapter 11 to write off old debts (including to their pensioners) and get a "fresh start." But college borrowers stay indentured forever, as do underwater homeowners unless they want to lose the house.The upside-down policy, of cutting public spending, giving debt relief to banks and corporations, while showing no mercy to students and homeowners, keeps the whole economy in debtors' prison. Until these policies change, we can look forward to a decade of high unemployment and an underperforming economy.
On Tuesday, President Obama announced a federal effort to map the human brain in unprecedented detail. With any luck, it might help explain the kind of loopy thinking we saw demonstrated at the end of the week. On the one hand, we had the latest jobs report, which showed a country still in crisis, with the addition of only 88,000 new jobs, and the share of the population in the workforce falling to the lowest point in decades. Yet the leaked details of the president's new budget show a focus not on job creation but on cutting the deficit by $1.8 trillion over the next 10 years (in addition to cutting Social Security benefits). So amidst hard evidence of our profound and continuing economic crisis, we get a budget offering a solution to a different (and far less pressing) problem. It's enough to set what Obama called "the three pounds of matter that sits between our ears" spinning.
Today's jobs report is widely being viewed as a sign of an improving job market, a view I share with (of course) caveats. The biggest question is whether the recent acceleration of payroll growth sticks, especially as the sequester takes hold, which it hasn't yet. So far, both the stock and the job markets have said "sequester?... what's a sequester?" But unemployment is still high, the labor force participation rate shows evidence of continued weak demand, and that's taking its toll on wage growth. We'll need a lot more months like this to get back on track.