Last month's drop in the unemployment rate and continued reduction of job losses is certainly good news. It indicates that the U.S. economy may have finally stopped shedding jobs. But without additional government action there is little likelihood that the economy will return to anything resembling full employment in the near future.
There are two reasons why it is critical that Congress pass a major new jobs initiative - one economic, and one political.
Job Creation and Deficits
The recent CBO report concluded that 600,000 to 1.6 million jobs have been created or saved to date by the effects of the first Obama stimulus package - and that's before a large percentage of total stimulus spending has even taken place.
That means that when the report was released, up to 1.6 million people would have been unemployed had Congress failed to pass the stimulus bill.
It is quite clear, as economist Paul Krugman wrote, that the stimulus bill was too little of a good thing.
In fact, at times of economic downturn, no entity other than the government can lead a recovery. And in the case of a recession as deep as the one President Obama inherited from George Bush, that is particularly true of job creation.
So if the first stimulus bill worked to create or save jobs, why not do it again? What stands in the way is the perception on Capitol Hill that the deficit is out of control.
Of course we've seen this movie before. During the Great Depression, the efforts of the Roosevelt Administration to use government fiscal stimulus - and direct Federal Jobs programs like the WPA - were interrupted by a similar concern for "controlling the deficit." Even before they were interrupted, these efforts were relatively modest, given the size of the economic problem. But when Roosevelt's stimulus programs were cut back out of fear of the growing federal deficit, the country saw a new increase in joblessness.
Recessions - or in the worst case, depressions - represent an imbalance in the capacity of the economy to produce goods and services on the one hand, and the demand for those goods and services on the other. There is too much supply and too little demand. There is a demand deficit. This deficit is ever so much more important than the federal budget deficit, because it means that we have more ability to produce wealth -the goods and services made by the economy - than consumers have the ability to buy. Since farms and companies can't sell as much product as they can produce, they cut back that production and lay off many of people who are employed to produce it.
When workers and plants lie idle, they represent wealth - and well-being - that is simply never created - that we lose forever. That means that we have to get by with less food, less clothing, less entertainment, less education - less of everything that determines the well-being of our society - and each and every individual within it.
The worst disaster for our economy is the waste of idle plants and idle workers, because for every day a worker is idle, we all lose wealth - and standard of living -- that we will never recoup.
This deficit between what we have the ability to produce on the one hand, and economic demand on the other, is the deficit we should really worry about.
During the 1930's Roosevelt was never able to convince Congress to pass a stimulus program large enough to enable America to recover fully from the depression and achieve full employment. It took Japanese Emperor Hirohito to do that. The attack on Pearl Harbor created a national emergency that justified deficits unlike anything anyone had ever seen. Those deficits financed a full employment economy and a massive explosion of the American Military that together finally ended the Great Depression once and for all. That economic mobilization provided the economic foundation for the longest period of widespread economic growth in our history - which, with a few minor interruptions - continued until the early 1970's.
Economically, this full employment mobilization did not require a war. World War II simply generated the will to make it politically possible.
Luckily, President Obama's first stimulus, and his actions that prevented a complete meltdown of the financial system, avoided another Depression. But three lessons stand out from the Depression experience:
- If we want long-term growth, the most important element is the full utilization of our work force.
- A relatively large deficit created in pursuit of full employment does not endanger long-term economic growth.
- Allowing concern for the deficit to constrain our pursuit of full employment can endanger economic recovery.
From an economic point of view, Congress needs to pass a large scale jobs program that focuses on spending, that directly puts people to work. Given the massive neglect of the public infrastructure over the last eight years, there is an enormous amount of productive work to be done - either by directly paying contractors or by funding a federal public works program like the WPA.
In addition, the Federal Government should use its ability to "deficit spend" to fill in the massive holes in state and local budgets. One recent study showed that if it does not, up to 900,000 additional jobs may be lost - both from the direct unemployment within state and local governments, and the loss of jobs among government contractors.
To be effective, such a program should not mainly focus on incentives for job creation. Tax incentives and other inducements to create jobs simply are not as effective on a dollar-for-dollar basis and their impact is much more difficult to track. It should focus on programs that directly create jobs.
Congress must act as soon as possible, to build on the momentum of the first stimulus, and avoid a "double dip" recession. It must also take action soon, for important political reasons.
The Politics of Jobs
If the job picture has not begun to significantly improve by next November's elections, voters will be in a "throw the bums out" sort of mood. This will be especially true if Congress fails to pass portions of the Obama program - health care reform, financial reform, clean energy legislation and immigration reform. But even if we have passed the key elements of this critical domestic agenda, if we have not made progress creating jobs, we are likely to see many more Republicans in Congress starting in 2011.
That result would not only represent a setback for the overall Progressive agenda - it would also make it even less likely that we can get the votes to pass the measures we will need to sustain long-term economic growth. It will increase the ranks of the Party of "No" and the Party that has now raised fear of federal deficits to an article of religious faith.
Let us remember that the Republicans never hesitated to create deficits when they were in charge. They generated deficits to finance their wars and their tax breaks for the rich without blinking an eye. Unfortunately, they created deficits at exactly the time in the economic cycle when you should be building up surpluses and paying down debt.
Deficits are certainly not always a good thing. They are a good thing when you need to stimulate the economy, not when the economy is growing briskly.
Nor are federal deficits inevitable. Remember that President Clinton handed Bush and the Republicans a growing Federal surplus. With their wars and tax breaks for the rich, Bush turned those surpluses into long term structural deficits. And that's not all.
The Republicans inherited an economic expansion and turned it into the current economic disaster by siphoning all of the fruits of growth to the top 2% of the population. The effect was a stagnant and declining standard of living for ordinary people even as the economy expanded. In the absence of growing disposable consumer income - a massive explosion of consumer debt developed and kept the economic engine going until the house of cards came tumbling down when the huge speculative bubble at the very top of the economy finally burst.
One year into the Obama Administration, we are still living with the recession caused by Wall Street's reckless risk-taking. We are also living with deficits that were created by the Right -- quite intentionally -- to constrain the growth of the public sector. The Republicans created a "Catch 22" that both caused the recession and then limited our ability to end it. We can't allow ourselves to be caught in this Republican trap.
The polling - and actual voter behavior - makes it clear that voters don't vote against incumbent Members of Congress because of "deficits." Deficits have far too diffuse an effect on individual voters to have any real impact on voter decisions. To the extent "out of control deficits" becomes a real issue in a campaign, it is a proxy for a more general level of discontent about the economy - a sense that the economy itself - and the voter's individual economic circumstances - are out of control.
What drives voters are their perceptions about their own individual economic prospects and those of their children. The prices of health insurance premiums, wages, housing prices, mortgage rates, personal income growth - and the ability to get a job - drive these perceptions, not concern about "deficits."
The bottom line is this: the top priority for Democrats who want to make sure that our candidates do well in 2010 is to do everything we can to create jobs. The Federal deficit should not be allowed to stand in the way.
Robert Creamer is a long-time political organizer and strategist, and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.