It's the Unemployment, Stupid

If the unemployment numbers keep rising into 2010, the Republicans are primed to pick up dozens of seats in the House, crippling the Obama administration's capacity to recoup in the second half of the president's first term. Obama would lose his very tenuous working majority and would confront a situation very much like the one Bill Clinton faced after the Republican gains of 1994, when he worked even more closely with Republicans in order to save his own skin. If you liked triangulation Clinton-style, wait for Rahm Emanuel's version of it.

The most recent employment numbers were bad enough on their face -- 263,000 job losses in September, and a measured increase in payroll employment to 9.8 percent. But the real numbers are much worse. The nominal rate conceals the fact that the labor force is 615,000 workers smaller than it was a year ago, even though the working age population continues to grow. People who can't find jobs and quit looking are no longer counted as part of the labor force. If normal labor force growth had continued, the unemployment rate would be close to 12 percent. See the analysis of the numbers by the good people at the >Economic Policy Institute and the estimable Dean Baker. The administration's people know this reality, and they are aware of the political risks. So what are they doing? Precious little.

I had a conversation with a senior administration economic official last week and I asked him to suspend disbelief and consider a large increase in public spending to create more jobs. What would he spend the money on? We discussed the pro's and con's of emergency fiscal aid to the states versus a tax credit for job creation in the private sector, subsidized job-sharing, and direct public works employment. But it was clear that the administration considers a Stimulus II a non-starter. The view is shared by Fed Chairman Ben Bernanke, who testified last week that there was not much we could do about rising unemployment except wait it out.

This is economically deplorable and politically self-defeating. When the administration considered its $787 billion stimulus bill last winter, its projection was that unemployment would peak at 8.9 percent. It's clear that joblessness is going to be a lot worse, and nobody has a convincing story about where the new jobs are going to come from once economic growth turns positive. Time magazine recently ran a cover story suggesting that we might just have to get used to a new reality of persistently high joblessness, and compensate with other policies such as more heroic job training (but for non-existent jobs?)

But that view is malarkey. Economists were making the same argument in 1938 and 1939. The economy, supposedly, had reached a level of maturity and technological sophistication that there just weren't enough jobs. Unemployment was just stuck around 15 percent. Then along came World War II. The federal deficit rose to 29 percent of GDP (this year it will be about 11 percent) and unemployment disappeared.

The president should be making the case for increased deficit spending on job-creation in 2010 and 2011, followed by a program of deficit reduction financed by progressive taxation. Public opinion on these issues is not static, and in fact a recent poll done by Hart Research Associates for EPI shows that the public cares a lot more about joblessness than it does about the deficit. 53 percent of respondents said lack of jobs was the most important issue, but only 27 percent said the deficit was. Fully 83 percent sand that unemployment was a big problem, and just two percent said it was not a problem. Presidential leadership could make a huge difference in translating these attitudes into action.

The Blue Dog Democrats in Congress are opposed to larger deficits, but many of them would support a ten-year program of more public outlay now coupled with deficit reduction after recovery comes. Unfortunately, a lot of Washington's centrist savants are skipping directly to the deficit reduction, overlooking the fact that we are still a long way from recovery. As EPI was holding a conference releasing the results of its research, the more moderate Center for American Progress (CAP) was holding a big event on alarm about the national debt. CAP President John Podesta, former director of the Obama transition team, is an enthusiast of value-added taxes as deficit-reduction medicine.

My own view is that VAT's are highly regressive taxes on consumption. I could go along with them if they were part of a deal that included progressive taxes such as a tax on financial transactions and if some of the money went to expanding public services rather than just reducing deficits. But this is only half of the conversation, and the less urgent half. Unless we get a bigger recovery going, and get unemployment down well before the 2010 mid-term elections, all this center-left policy wonkery will be beside the point because the Republicans will be running the country.

Robert Kuttner is co-editor of The American Prospect, a senior fellow at Demos, and author of Obama's Challenge.

 

Comments

[ksmith111]

In these trying times not extending the unemployment benefits is asinine. What they are fighting over in the senate is really stupid, they should extend for all states whats the worse that can happpen stimulate the economy? maybe some companies will be able to hire some people. If they don't need the funds don't use them

[gd h]

It's hard to understand a democrat who thinks--or who hires people who think--that high unemployment is just part of the landscape and we just have to wait it out. Like, until when, I'm dead? Probably. But the bigger problem (I'll survive until then, forgive the non sequitur) is that we'll be "waiting it out" with Republicans in charge, and that is going to be a problem like we've never seen before. Imagine all of these wackos getting the steering wheel again, with full knowledge that no Democrat anywhere has the strength to even object. And that's precisely the message they're getting.

I'd like a dollar from every one of the readers here who somehow, probably through magical thinking, are committed to the idea that Democrats can keep the majority even if unemployment stays at it's current level. It's never happened before. Voters still elect politicians, not corporations; and that Democrats, one in particular, seem to think that Republicans will help elect them because they are nice people who will do anything for them--is just unbearably ludicrous. On the order of Bush ludicrous. I'm just as frustrated now as I was with the Bush--except now it's a pompous Harvard grad president who is not only tone-deaf to employment issues, but they have never even entered into his elite world-view. Get used to the republicans. They aren't on the way out, but are on the way back, and we are doing nothing effective to stop it.

[macohmz]

The troubles here are overshadowed by 2 wars. How can anything be done here when 2 wars are bleeding us dry. We're supposed to pay for wars and everything else with an economy that will be anemic forever? I like a little absurdity every now and then for relief but absurdity on this grand scale is truly frightening.

[beeswalking]

We all have vast experience in our chosen fields, if we are over the age of 30. A-lot of us have run our own businesses and taught children, raised families and managed budgets. We have negotiation skills beyond any life time politician (if, like me you have more than one child), we can handle ANY emergency that comes up with tactical maneuvering and diplomacy. We can manage our time, prioritize, triage and multitask. We can organize, plan and implement dinner parties for 30-300. We can dress up or dress down to meet the occasion. We can schmooze when we need to, shake a hand or give a pat on the back because we can tell which is the appropriate response!

If you want a fresh take on a situation or to resolve a recurring glitch, who would you ask first: Someone that has been doing the same thing the same way forever or someone that has not had the time to develop bad habits and is enthused to learn and eager to make a contribution?

I am suggesting a shift in thinking. If our Country and our World has changed so much is it not time for us to change with it? I am not unemployable, it just means I need to find a company that can value my life experience and solid skills in sales and turn them into something useful and productive in a different direction!

[bacaja]

The idea that Obama ever had "a working majority" is absurd as so many Dems are sold
out to special interests as Repubs. Also the thought that voters will hand back congress
to the same vandals who created this mess is equally absurd!

[research]

about 7 of the senate but half the house dems are good, the Progressive caucus,

[SiouxSayer]

For 10 years I was a stay-at-home dad. Wife's work paid the bills as I struggled to make my small photo studio work. 3 years ago we discovered my wife had a rare cancer. She is in remission and fine now. Medical bills ate away all savings. 2 months ago my wife, as a cancer survivor, decided she wanted another bite at the apple and has decided to leave me with our 2 girls. Doctor says this happens frequently after chemo. I'm devastated, lost and unemployed. With no formal degree to fall back on and at 41 years old with no family for help, I am in deep, deep trouble. I'm scared, feeling hopeless and not eating or sleeping particularly well. I have never begged for anything in my life. Yet, I feel that before my internet is turned off and the lights go dark, ..I simply need to ask for some help or a miracle...­from anyone. I've managed my photo studio for 8 years and have a high degree of IT experience. (no programming, though). I'm wired creative, not so much mathematically. If anyone has a network of contacts that might be looking for a dedicated, creative mind and a solid employee for the long haul, please see my profile for my contact info. If anyone can help...or guide...or suggest...­­anything.­.­.I'm running out of time...My email is on my profile page if you can offer ideas or anything.

[research]

We lent 24T$ to the bankers who crashed the economy.

They are now in charge of who gets money.

They don't like Main Street.

They prefer CDS TARP backed gambling derivatives, which we MUST outlaw.

That will leave the bankers no choice but to invest in the hated Main Street.

[Norm]

Does anyone know how high the unemployment rate has been historically before the government intervened with a direct jobs program??? I remember the CETA program (where I was a jobs counselor) which placed many unemployed in jobs where they served their (currently hurting) communities in productive ways. No, nobody was placed in a $75,000 job, but I think those demanding high paying jobs may have to face not ever having them again. We all may have to rethink our futures, learn to live low. The benefits to the planet, after a period of profound pain, would be enormous - maybe even ensure our survival as a species..

As much as I support Universal Health Care, it may need to wait until more universal employment. This downturn may become a period of extended societal upheaval, no matter what is done for the immediate future, which few appear to be looking beyond.

This day was coming, we knew it, and we all approached it with tunnel vison. . There are elephants in the room I have seen no one address in years, one of which is population control, which we all knew was critical 40 years ago. All of us know what we are and have been doing can not continue, though few of us take responsibility for the crisis we are in. Banks notwithstanding, we are complicit in our own demise. Once we own up, maybe we can do what we need to??

[Eres]

I don't understand why people continue to preach that the GOP is poised for a big win in 2012 when the economic crises we're in is their fault and they have demonstrated for the past 8 months they have no solutions or willingness to support solutionss proposed by Dems.

[cartunes]

Bill Clinton can thank the republicans for saving his political career, If you look at his first two years he would have turned this country into a huge Arkansas 49th state in everything. And Obama and the American people better hope that the same thing happens again. For sure this white house looks like they are working very hard, but that is because they are learning and making it up as they go along. We all know is not how hard you work but how productive you are.

[GardenerNorCal]

That's what I remember as well. But I don't believe republicans are more equipped to help me find work than democrats. It did work out under Clinton. Only because the republican dominance of congress hamstrung most legislation.

I am not so sure it would work under todays circumstances. Today we already hamstrung by the corporate purchased interests of both parties. What we really need today is legislation that will provide transparency and oversight and neither party is promising that.

[center1]

It won't work for the simple reason that business owners and managers decide how many to hire, how much inventory to stockpile, how much profit to reinvest for growth of the business, etc. based on their projected return. They know that the higher the deficit goes, the greater the tax rate will eventually be on them and, with less certainty, the lower the demand for their product/service. So factor in the risk of having more employees and inventory than the market will support and, in any case, the reduced ROI due to a bigger tax take out of pre-tax profits, and the smart businesses are trimming or sitting tight. But now is an ideal time to create some employee-owned enterprises if you really believe employers have been exploiting labor, as seems to be a common belief here on HuffPo.

[Ohio5470]

All this is wild speculation. I imagine the democrats will loose seats in one or more houses. This is to be expected as electoral expectations are never met and people readjust. The problem is not so much that Obama is wrong it is that he is not right enough. We need stimulus, stimulus, stimulus. And if that does't work more stimulus. Most unemployed or underemployed don't give a damn if the deficit increases by 100 billion or 100 trillion. If the Bush 2 years have taught us anything it is you can't spur jobs and economic growth with tax cuts to the upper 1-2% of the population. As republicans are so apt to suggest , you can't throw money at the problem and in this case they are right. You need to deal with an increase in wealth at the bottom. Trickle up folks. People have to buy groceries, clothes, pay the mortage or rent, etc. And once this money is in the system it keeps on giving and earning. Obama needs to kick some Blue Dog butt and totally ignore the Republicans. Put the wealth those at the bottom created and let them spend us into recovery. MORE STIMULUS

[hypnotoad72]

Well said.

Even Abraham Lincoln was cognizant on the value of labor, for the results of labor trickled up.

For all the talk of a lowered standard of living, the quality of many products out there - I'd be inclined not to buy them. Net result is the same but I will NOT reward mediocrity. No more Microsoft, no more HP, no more a dozen other brands whose quality has plummeted over the last 7~8 years.

[spinmas]

I can't believe a man that seemed to be so smart could not realized that he needed heavy lifting around jobs, getting stimulus money out of the door quickly and creating goverenment jobs programs. Obam has people giving him information from all perspectives and he consistenly goes off in the wrong direct. Hillery was right about this guy, all suit and no cattle, everyone gets that he had a lot to deal with, but he is mucking it up in a grand style. If Jackie Robinson had been as bad in baseball as Obam is as president, it would have taken years longer, if at all when baseball opened up to black players. He claimed that he could bring people together and the opposite is happening, he can't even energize his base.

[Flavor]

Remember this Hillary also works under this same guy, and you probably if she were in office would talk about her, republicans are not for any democrat so take your rhetoric elsewhere.

[SoCalDaveO]

The best thing that could happen to Obama would be the same Best Thing that happened to Clinton. The GOP swept in and every decision that Clinton made on the economy and spending for 6 years was forced on him by Newt. Obama will go down as a bad, weak president - like Carter. If the power is split, Obama could still be great - with the grownups running congress.

[lobo1023]

Every time one of these economic guys talks about how America pulled itself out of similar bad circumstances, they always mention the same cure; WAR (World War I, World War II, etc.) The shame is that for America it just seems that in order to really prosper economically we have to have a fully functioning war-machine . It's only then that we actually manufacture something; weapons. But at least everyone is working, except for the soldiers dying.

[GardenerNorCal]

War isn't going to work this time. Bush/Cheney already exploited it to the hilt while our economy was prospering. The only thing that can work now is regulation and oversight and neither party is willing to do that. So as a voter what I will do is vote out every incumbent. Let them feel as insecure as the rest of the nation.

[bigfro]

Just because someone doesn't collect unemployment doesn't mean they've stopped looking for a job. How do they live if they stopped looking. It's not like Wlefare pays your rent. Many people don't get unemployment. Even if someone wuit a job, it doesn't mean they aren't looking. They are still unemployed and will do what it takes tro survive. We are breeding criminals.

We should count all of the unemployed, not just those collecting money. So people choose not to collect unemployment. Some places hire and fire people before they have worked enough to qualify for unemployment. They say that 10% of americans are on unemployment, which means 30% of people are unemployed. There are three people unemployed for every one taking unemployment. Maybe more because there are people looking for a job for over a year and there are none. If you intellectuals are so smart, then why do you let this lie continue and act as if it has any validity. You know better Kutner. Call a spade a spade for once

[GardenerNorCal]

We shouldn't be basing our economy on the basis of the un or under employment. We should be basing it on employment. And we have those figures. For every individual legally employed we have W4 forms. It's already reported isn't it? Or have employers been hedging that as well by hiring under the table illegal immigrants and underpaid employees?

Shouldn't the vagaries of this system have been worked out long ago? Amazing isn't it that such a crucial factor in our economic health is still a number that can be manipulated and played by those that seek to profit from it's very ambiguity.