THE BLOG
03/28/2010 05:12 am ET Updated May 25, 2011

The Politics of Unemployment

I am worried. The election in Massachusetts shows that American voters want action from Washington to bring unemployment down. The problem is that many of these voters think that the right action is to slash government spending and the federal deficit, which will make the problem worse. Of still greater concern, lawmakers are in danger of doing what the angry public wants. Voters desperately need to think more clearly about why jobs are hard to find and what can be done to return to prosperity.

Here is how I believe they should analyze the problem:

1) A few years ago the U.S. economy was growing because consumers were borrowing money from banks and credit card companies to buy houses, cars and other goods and services. Private spending and spending for the war in Iraq were driving job growth.

2) Things changed when housing prices began to fall and consumers could no longer borrow money using their houses as collateral. The result is unemployment because new construction has nearly stopped, car sales have fallen, and sales of other goods and services have fallen with them.

3) The drop in consumer spending has left a huge spending hole that has to be filled by spending of some kind to make jobs again. Government borrowing and spending has filled some of that hole with the stimulus program and unemployment insurance. It is keeping many people and businesses afloat, but just barely.

4) In early 2010 it is clear that more government spending is needed to continue to pay unemployment insurance and to support states and localities that otherwise will lay off more employees and further reduce services.

5) Government spending has been the life boat, but voters in their anger are demanding that the life boat be sunk.

If political leaders succumb to pressure to reduce spending quickly, there is no way to get people back to work. Somebody has to spend money, but who will do it if not the government? Can consumers increase private debt again? Not now, not quickly. Should businesses invest more? Yes, but they are not doing it because it is harder to find good investments when nobody is buying? Should the U.S. export more? Again the answer is yes, but exporting involves cutting prices and producing products that consumers in other countries want. We ought to do it, but that will take time.

The best quick thing to do to reduce joblessness is to increase government spending for useful things like public works, modern transportation facilities, energy projects that replace imported oil, and world class communications networks. Private investors might put money into such projects if the government put in money too. Modernizing these public facilities will create jobs and demand for other goods and services that also create employment. Once consumers have money again they will be able to keep employment rising without government help.

Please don't respond to this analysis by blasting me as some kind of lefty. I am not and I have written two books to prove it. Instead, tell us who you think is going to do the spending needed to put people back to work. If it is not the government, who do you think it is going to be?