08/05/2012 03:19 pm ET Updated Oct 05, 2012

Excerpt: Sabotage: How the Republican Party Crippled America's Economic Recovery

Adapted from my book Sabotage: How the Republican Party Crippled America's Economic Recovery :

When Americans go to the polls this November, they'll be looking for some payback. The Great Recession supposedly ended in June 2009, but what followed was hardly the kind of bounce that usually put the economy back on its feet. Rather, in the following two years the economy produced about two million fewer jobs than it would have under historically normal conditions. The unemployment rate was still above eight percent, and people around the country were still suffering the pain and indignity of hunger, bankruptcy, and foreclosure. Why? Who was to blame?

After any recession, growth usually returns before jobs do. Companies want to see a steady stream of higher revenue and profits before they're comfortable hiring more people. But this recession was different. Part of the problem was the fiscal crisis in the euro zone that seemed like it would never end. Then there was the debt crisis provoked by Republicans in Congress just as the downturn was ending, which dumped a new load of uncertainty onto the financial markets and the economy as a whole. That crisis was the most violent manifestation of the continuing debate in Washington about reducing the federal government's debt. In the states, most of which had strict balanced budget rules, the debate was moot.

As the politicians were sharpening their axes in Washington, state and local governments were facing an unprecedented reckoning, with millions of jobs and services at stake. In the aftermath of a recession, they were caught between low tax revenues and high demand for the services they provided to citizens. Facing big deficits, their balanced budget rules forced them to make deep cuts in programs and jobs. The first stimulus package, signed into law in February 2009, contained $144 billion in direct relief for state and local budgets. But the state governments alone were still $113 billion in the red for the 2009 fiscal year, and an even bigger shortfall was coming in 2010. It was an enormous hole to fill.

They filled it with cuts. From January 2009 to March 2012, local governments slashed their payrolls by almost 450,000 jobs -- about three quarters of the jobs lost in the public sector nationwide. The total, between states and municipalities, was 535,000 jobs. Just when Americans most needed the services provided by state and local governments -- Medicaid, children's services, help finding new jobs -- the people who delivered those services were disappearing.

By this time, the private sector had already begun creating jobs again, albeit very slowly. In fact, job growth in the private sector would have been faster if not for the cuts to services in the public sector. Economists at Stanford, MIT, and the University of California at Berkeley studied the effect of federal aid for state Medicaid programs on jobs. They found that every $100,000 in aid during the downturn resulted in a gain of 3.8 jobs for a year, on average, and 3.2 of those jobs were outside the government, health, and education sectors. The reason was simple: people needed health care so they could search for jobs and work. When the funding disappeared for programs like Medicaid, the jobs did, too.

This result gave the lie to Republicans' rhetoric. Back in January 2009, Boehner had dismissed aid to states as pointless, saying that the $300 billion designated for the states was "not going to do anything, anything to stimulate our economy." Later, in August 2010, he opposed another $26 billion to shore up state budgets, calling it, by turns, "a pay-off to union bosses and liberal special interests" and "special interest bailouts." But even though government was shrinking at the state and local levels -- a goal of the Republican economic philosophy - jobs outside government were being destroyed as well.


The damage to American households could have stopped with the job losses. Unemployment benefits usually provided enough support to keep families from slipping into poverty while their breadwinners were looking for new jobs, usually up to a maximum of about half a middle-class worker's normal pay, for 26 weeks. After the Great Recession, these benefits were essential for shoring up household incomes. Unemployment had risen to levels unseen since 1983, and finding a job was much harder -- fewer companies hiring, government jobs disappearing, and many more people competing for any given position.

Congress had already extended jobless benefits in 2008, and the first stimulus package offered several additional subsidies: an increase in weekly benefits, a one-year tax exemption for benefits, an extension of benefits until the end of 2009 paid for by the federal government, $500 million to help states run their programs, and up to $7 billion in further payments to states that modernized their unemployment systems. Yet even after the first stimulus became law, thanks to Democratic majorities in both houses of Congress, Republicans resisted.

Within days, six Republican governors announced plans to reject the extra funds for unemployment insurance, saying the money would enlarge the federal government's debts and lead to new taxes when it ran out. But the problem was still getting worse, not better; the unemployment rate was at 8.3 percent, still eight months away from its peak at 10.0 percent.

Only a month after that peak, the Republicans gained control of the House of Representatives and found new power to oppose further extensions of unemployment benefits. They insisted that every extension be accompanied by cuts elsewhere in the federal budget, forcing austerity on the American people even in the midst of 17-year highs in unemployment. In the spring, summer, and fall of 2010 they blocked bills that would have extended benefits. Their slogan sounded attractive enough -- "benefits, yes; deficits, no" - but the fact remained that cuts elsewhere in the federal budget at such a delicate time could still threaten jobs and the economy's long-term future.

The Republicans were actively opposing unemployment benefits in the Senate, too. Jim Bunning, a senator from Kentucky, used his procedural powers to block a vote on a bill that extended benefits, including the availability of health insurance for recently unemployed people, in February 2010. His response to Democrats who criticized his stance was simple: "Tough shit." Benefits expired for thousands of people, and the Department of Transportation had to put 2,000 workers on furlough, before Bunning relented.

Times were tough indeed for the jobless. In 2011, Republicans in the House proposed ways to make them tougher, with new requirements for receiving unemployment benefits: mandatory job interviews, drug tests, and enrollment in high school diploma programs. So not only would people have to land an interview -- not easy even if you send out hundreds of resumes -- but even those who managed to find work without a diploma would now have to spend time getting one that might otherwise have been spent on the job search itself.

But why did the Republicans have such a cavalier attitude? Why did they hold hundreds of thousands of Americans' benefits hostage in a battle for budgetary austerity, even in the middle of a downturn? It wasn't just their belief that smaller government was always better. It also had to do with their assumption that the American economy was a true meritocracy. If you couldn't find a job after a year, then chances were it was your fault.

Yet thousands of Americans had been searching for a year or even longer. By April 2010, the share of unemployed Americans who had been out of work for at least six months was 45 percent, roughly double what it had been at any time after the previous six recessions. For each job opening, there were five people looking for work.

In the past, economists had shown that people often found jobs just as their benefits were going to run out, implying that the benefits had kept them unemployed for longer -- or perhaps that the benefits had allowed them time to find a better match for their skills. This could not have been the case after the Great Recession, however; there simply weren't enough jobs available. Rather, unemployment benefits were giving people an incentive to keep searching instead of leaving the labor force altogether. After all, by law they had to search to get the benefits.

Even with this incentive in place, however, Americans were dropping out of the labor force in droves. The number of "discouraged workers" -- people who stopped looking because they believed no jobs were available -- rose from 363,000 at the start of the recession, in December 2007, to a peak of 1,318,000 in December 2010. In these three years, a total of almost a million Americans had simply given up.

Getting them back into the labor force would be harder than ever. Economists from Wall Street to Washington and at many universities in between were warning about "hysteresis" -- the tendency of the economy to lose its resilience if it stayed in a slump too long. With time, what people had first seen as temporary increases in joblessness could become permanent, structural features of the economy. Anything that delayed the recovery would make hysteresis more likely. Instead of springing back to life, the American economy might never fully recover.

Hysteresis was another reason why stimulus was so important, even if goosing the economy just meant borrowing growth from the future. It was true that whatever the nation borrowed to finance more spending and tax cuts would have to be paid back someday. But if the economy got stuck because of a failure to act, the cost would be much, much greater. The patient was on the operating table; it was not the time for the surgeons to go out for a cigarette.


The penury forced on families by Republican recalcitrance was not just causing suffering in the short term; it was also destroying their futures. Just at the moment that these families most needed the services provided by government -- education, health care, food, shelter -- all of them were being curtailed. Millions of families did descend into poverty because of jobs lost in the recession, exacerbated by debts from houses that were no longer worth as much as their mortgages and the rising costs of food and fuel. Overall, the number of Americans living in poverty rose to more than 46 million in 2010 from 38 million in 2007, the year the recession began. The poverty rate topped 15 percent for the first time since 1993. For minorities, the toll was especially severe: almost 40 percent of African-American children, for example, were growing up in poverty.

Hunger, the most extreme manifestation of poverty, was also on the rise. In the United States, there is a strong correlation between joblessness and hunger. Essentially, the unemployment rate plus about 6.3 percentage points is the hunger rate; the two trends move just about one-for-one. The causal relationship between them is pretty clear; not having a job leads to hunger much more than hunger brought on by other factors leads to unemployment. So whenever the unemployment rate goes up, the percentage of Americans experiencing hunger rises by the same amount. And because only about three-fifths of the population is in the labor force, the actual number of hungry people rises by more than the number of jobless. If the 535,000 jobs lost in state and local governments had been saved, almost 900,000 Americans might have been protected from hunger.

The broader picture for the economy was equally stark. At the end of 2007, when the recession began, the unemployment rate was 5 percent and the rate of hunger was 11 percent. At the end of 2010, well after the recession had ended, the unemployment rate was 9 percent and the rate of hunger was 15 percent, both rates having been fairly stable for two years. This increase in the hunger rate affected roughly 12 million Americans - 12 million people who were waiting for the economy to recover just so they could get enough to eat.

A third of them were children. And for children, hunger has long-term effects. Their health is worse as adults. They develop lower cognitive capacity, are more likely to repeat grades in school, and are more likely to fight with classmates and be suspended. Already facing the inherent disadvantages of growing up in poor households, these children follow an especially difficult path in their later lives. Low cognitive ability and patience would make holding down a job harder and a lapse into criminality tougher to avoid. It was a vicious circle; in the end, they, too, would probably raise their children in poverty.

The problem was especially dire after the Great Recession. In every recession since the 1970s, when data from the Foundation for Child Development begin, the deterioration of children's welfare continued for two or three years after the recession ended. With no action by Congress to shore up services and restore families' economic well-being, the foundation predicted that child welfare levels would give back all of the progress they had made in the previous decade. Families hit by joblessness had already gone through the further indignities of raiding retirement accounts and college funds, borrowing from friends and relatives, and seeing cars and homes repossessed. There was nothing left to cushion the blow. Aid to the states and extensions of federal benefits were the only ways to fight hunger at a national level, but the Republicans opposed both of them. They were punishing not just today's workers but the next generation as well.

America paid a terrible price for the Republicans' intransigence. Whether they were deliberately damaging the economy or simply incompetent at making policy, the effect was clear: sabotage of the recovery, and a wound that would not heal for millions of American households.