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NationOfChange / Op-Ed
Published: Monday 25 July 2011
"If consumers can’t and won’t buy, and employers won’t hire without customers, the spender of last resort must be government. "
Vicious Cycles: Why Washington is About to Make the Jobs Crisis Worse
Walter Quirt: Obeisance to Poverty
We now live in parallel universes.
One universe is the one in which most Americans live. In it, almost 15 million people are unemployed, wages are declining (adjusted for inflation), and home values are still falling. The unsurprising result is consumers aren’t buying — which is causing employers to slow down their hiring and in many cases lay off more of their workers. In this universe, we’re locked in a vicious economic cycle that’s getting worse.
The other universe is the one in which Washington politicians live. They are now engaged in a bitter partisan battle over how, and by how much, to reduce the federal budget deficit in order to buy enough votes to lift the debt ceiling.
The two universes have nothing whatever to do with one another — except for one thing. If consumers can’t and won’t buy, and employers won’t hire without customers, the spender of last resort must be government. We’ve understood this since government spending on World War II catapulted America out of the Great Depression — reversing the most vicious of vicious cycles. We’ve understood it in every economic downturn since then.
Until now.
The only way out of the vicious economic cycle is for government to adopt an expansionary fiscal policy — spending more in the short term in order to make up for the shortfall in consumer demand. This would create jobs, which will put money in peoples’ pockets, which they’d then spend, thereby persuading employers to do more hiring. The consequential job growth will also help reduce the long-term ratio of debt to GDP. It’s a win-win.
This is not rocket science. And it’s not difficult for government to do this — through a new WPA or Civilian Conservation Corps, an infrastructure bank, tax incentives for employers to hire, a two-year payroll tax holiday on the first $20K of income, and partial unemployment benefits for those who have lost part-time jobs.
Yet the parallel universe called Washington is moving in exactly the opposite direction. Republicans are proposing to cut the budget deficit this year and next, which will result in more job losses. And Democrats, from the President on down, seem unable or unwilling to present a bold jobs plan to reverse the vicious cycle of unemployment. Instead, they’re busily playing “I can cut the deficit more than you” — trying to hold their Democratic base by calling for $1 of tax increases (mostly on the wealthy) for every $3 of spending cuts.
All of this is making the vicious economic cycle worse — and creating a vicious political cycle to accompany it.
As more and more Americans lose faith that their government can do anything to bring back jobs and wages, they are becoming more susceptible to the Republican’s oft-repeated lie that the problem is government — that if we shrink government, jobs will return, wages will rise, and it will be morning in America again. And as Democrats, from the President on down, refuse to talk about jobs and wages, but instead play the deficit-reduction game, they give even more legitimacy to this lie and more momentum to this vicious political cycle.
The parallel universes are about to crash, and average Americans will be all the worse for it.
This article was originally posted on Robert Reich's blog.
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ABOUT Robert Reich
ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.
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8 comments on "Vicious Cycles: Why Washington is About to Make the Jobs Crisis Worse"
July 31, 2011 10:17am
The depression and the resulting recovery is well known to any 8th grade student. FDR did it with Executive Power. What would happen if Obama invoked his Executive Privilege? Certainly, there would be objections, but would it completely interrupt programs like the WPA and CCC before the public could see the positive potential of such actions and rally behind the programs worth? Could there be such litigation to completely forestall rail construction, bridge repair, etc.? If it is the mission to have a one-term President, if I were Obama, I would pull out all the stops and make it one term to be forever remembered! It's called courage and backbone. I'm tired of rhetoric. I'm ready to take to the streets. Who will listen? Does not the middle class get it? The rich started by rendering the poor completely impoverished with dulled deluded motivation, ergo the lottery and “Who Wants To Be A Millionaire.” They have now entrapped the middle class or should I say the “new poor” with government corruptly supporting corporate endeavors which impoverished thousands of people having to lose their $500,000 homes and lined the pockets of many disgustingly greedy and immorally corrupt people. The middle class is falling off the cliff of halves to have-nots like the slaves succumbing to their death being trapped by the massive rollers to make new roads by the Romans (I went to the movies before it was so expensive). They don’t want to see it coming because they’ve been suckered into thinking they were rich, or on their way to being rich, just to find out they have to live right next to me scraping to make ends meet paycheck to paycheck if they are lucky to have kept their job. The stimulus package was for them, not for people like me who already had the short end of the stick and holding on for dear life. We know how to exist. Notice I didn’t say live, just exist, but we are good at it. There’s nowhere to fall we are already on the bottom. We know how to get to the food bank, what you need to apply for emergency assistance and where the other charities are located and how often and when they get their funding to line up for the pittance of help. Wake up use-to-be-middle-class people! I never realized hope and disillusionment were so closely muted as to dull the obvious. What is the next chapter in corporate greed? Don't forget the entertainers and sports moguls who have a say in common man's demise.
July 28, 2011 6:06pm
We are stuck with Obama for a couple of reasons and we can blame the Democrat Leadership for it all. Obama was indoctrinated into politics by the Austrian School at the University of Chicago. The ongoing failed leadership of the DNC, most came from the DLC with the Clintons in the late 80s, homed in on Obama during the 2004 election season and decided to hold the party's Liberal base hostage to a black candidate in 2008. Most older Democrats still blame themselves for Jim Crow and a prolonged run of discrimination against Black Americans because of their political inaction.The DLC convinced the Democrat party's base that they would never regain significant control in Washington until they screwed their constituency and went after the same money that has been electing Republicans since 1968. Remember that up until 1992, with the exception of Carter’s one term that was mainly due to a backlash from Watergate, the Republicans had held the White House since 1968.Obama's right wing attack against his own party's core social programs that turned the corner for this country during the last depression has perplexed and confused many traditional Democrats that have always held those programs sacred during their lifetime. The Progressive wing of the party that has always backed the New Deal Social Programs and continues to be kryptonite to the Blue Dog conservative Democrats, remains partially paralyzed by Obama’s actions. Past Democrat Presidents have never faltered in their support for the Democrat Social Agenda and they can only hope that Obama has some ultimate secret plan to save the day and they don't want to screw it up !
July 27, 2011 8:45am
Mr Reich, you would do everyone a great service if you took the time to examine closely the role of energy in the current economic plight. When the oil price spiked to $147 a barrel in 2008 and the world economy started sputtering it wasn't just the work of the dreaded speculators. World oil output had been nearly flat for years despite rising prices. It took the recession, which many believe the oil price helped to trigger, to bring the price down; but with partial recovery it has again risen.
You have surely noticed that with every piece of encouraging economic news the oil price tends higher, falling back on bad news. A while back you said: "Higher gas prices at the pump are undoubtedly going to be a blow. It's not going to dramatically slow down the recovery; but it could definitely slow it down." If supply cannot meet demand stemming from recovery (including demand from China, India etc), don’t you think that the price of oil and all it affects (i.e. everything) will again quickly rise, with or without the help of speculators, leading to further recession?
You surely do not believe that infinite economic growth is possible, or even that China's economy can double it's consumption of resources, including fossil fuels, in the next seven or eight years? Can you be comfortable ignoring these issues in your future writing?
July 26, 2011 10:11pm
Mr. Reich you are absolutely, positively on target! I am puzzles why the President did not reappoint as Secretary of Labor? By the way, where was this guy Grover Norquest during the BUSH eight years of Free spending Govt. when our US economy was being sent into a near depression? He is just another right wing political hypocrite millionaire trying not to pay his fair share of taxes to become a Billionaire! Stop the hypocritical republican’s Class War on Middle America and from spreading their continued fairy tale lies that stopping the continued Bush tax cuts (give a ways) for billionaires and Millionaires will negatively impact on the (mis-labelled) job creators! This B.S. has gone-on for 9 years with less Americans employed, but more American jobs being outsourced to China by many of these same billionaires and millionaires that are getting trade tax subsidies by the Republicans in order to get their thousands $$$$ in campaign contributions! Meanwhile, American jobs are now filled by cheap labor in China! Ross Perot was exactally right about these socalled free trade agreements!
July 26, 2011 1:10pm
Thank you Mr Reich. We need to hear small articles more and more often from you so that we (ordinary citizens who are not economically trained) can better understand what the heck is happening here. I saw your 2 min video a few weeks ago, I can't recall what website.
Keep it up!! And thanks.
July 26, 2011 12:56pm
Willard nailed it. Bravo. Keep speaking out. People like Candis are incapable of understanding even basic economics and certainly could never learn from history. Like Reich says this is not rocket science. We have excellent examples in our history, and the histories of other countries, that clearly show what needs to be done. Focusing on the deficit will destroy what is left of our economy (after the Bush recession ... worst economy since Hoover and the Great Depression) ... and of course that is what the puppeteers want so they can continue to own more and more (top 1% in 1980 had 8% of US income ... Reagan cut their taxes in half ... 30 years later they have 23% of US income) or US wealth. This is what is called an oligarchy. Are you still there Candis? These are facts. The government needs to start spending and hiring companies to fix our roads, bridges, electric grid, high speed rail, etc. and do it now. If not we will sink into further recession and the deficit will get even larger. (The main reason the deficit is so high is because of the Bush recession ... ie. economy went in the tank, people lost their jobs ... thus government revenues went way down.) Candis ... read this and Willard's comments several times so that you get it.
July 26, 2011 12:30pm
Of the last "job creation" money spent around these parts, about 90% of it went to "administrative costs." Basically funding the wants and needs and follies of the existing bureaucracies. I suspect that any of my unborn grandchildrens' tax dollars that you want to throw out at the PTB once again will be used in exactly the same manner. Gotta keep the good times going for the crats. I suspect your expecting your next electronic deposit from more than one gubbmint source any minute now yourself. Kinda clouds your view of things if that's the case.
July 26, 2011 12:08pm
These (the politicians and their consultants) are smart people and understand basic economics and historical lessons learned. The thing that is missing is an understanding of the political motivations. Making things worse for the country and shifting the blame to Obama serves to fulfill the stated agenda of having him be a one-term president. As stated many times, noting is more important. Thus we have the party of NO…regardless of how bad it might be for the country, particularly the middle class. The current strategy of saying NO has moved to doing things at the very last minute such that there is no time to veto and negotiate something that works. Again, more blame shifting. The real question then becomes, why do they (the tea party and right wing nuts) dislike him, a smart black man, so much.