Meeting the nation’s long-term obligations won’t be possible without a stable economy.
Despite the stabilization of the financial markets, a rising stock market, and what appears to be modest growth in the economy as a whole, unemployment rose to 9.8 percent in September. When all those who have given up looking for work are counted, the actual number of unemployed is much higher, perhaps 15 percent or more.
Economists and politicians (at least Democratic politicians) are quick to note that employment is a “lagging indicator”—that the economy is in the midst of a predictable “jobless recovery.” In other words, even as things improve, employers remain wary of adding to their payrolls until they are confident about prospects for the future. In the meantime, 8 million people have lost their jobs since the recession began, the worst period of job loss since World War II. One out of every four families has seen someone lose a steady paycheck. And few experts expect things to get better soon. There seems to be little doubt that unemployment will climb to more than 10 percent during the first half of next year.
Americans are right to be dissatisfied with the pace of the recovery, especially when they see bankers and other financial gurus once again reaping enormous bonuses after having come hat in hand to U.S. taxpayers to bail them out of a catastrophic situation only a year ago. The near collapse of the financial sector plunged the global economy into the greatest crisis since the Great Depression. Only the coordinated actions of governments forestalled disaster. When private investment and consumer spending froze, governments across the globe committed themselves to spending hundreds of billions of dollars to sustain economic demand and preserve jobs. In Germany, for example, the government is currently subsidizing the wages of 1.4 million workers. China is spending billions on domestic projects to compensate for the loss of demand for Chinese products in the West and to keep its economy growing. Yes, high levels of government spending pose inflationary dangers for the future. There exists, however, a broad consensus among economists that, with consumers and investors still reluctant to spend, the greater danger remains a potential economic relapse, and possibly deflation. It will take years for the phantom “assets” on the books of banks and other financial institutions to be paid for or written off. In the meantime, as the staunchly pro-market Economist writes, if we are to avoid repeating the mistakes of the 1930s or the economic paralysis of Japan in the '90s, “the future of many Western economies will look more like continental Europe in the 1980s, with large deficits, heavy public debts, and stubborn unemployment.” This, the Economist notes, is still preferable to what would have happened had the fate of the world's economy been left to the market alone.
In these circumstances, the worst policy proposal imaginable is the one put forward by the Republican leadership in Congress to freeze government spending and balance the federal budget. That would truly mean repeating the mistakes of the Great Depression, when FDR attempted to balance the budget during his second term only to deepen and prolong economic stagnation. (Still, the chutzpah of politicians who vigorously championed the Bush administration's budget-busting tax cuts and Medicare benefit program is impressive.) Instead, more federal help needs to be extended to the unemployed and to state and local governments, proposals the Obama administration is pursuing, and there should be new tax incentives to get employers to start hiring again. Given the increase in unemployment, it seems that those economists who warned that the $787-billion stimulus package passed by Congress in February was too small were right. Since President Barack Obama sold the stimulus as a “jobs bill,” the lack of job creation is bound to create political difficulties for him. At the same time, the administration points out that 60 percent of the money in the bill still needs to be spent, with a significant portion of those funds dedicated to construction and infrastructure projects that eventually should improve employment figures.
No one should pretend that the federal budget deficits and the ballooning national debt are not serious long-term problems. Higher taxes and reduced services will eventually be a burden that all Americans will have to shoulder to secure the future stability and prosperity of the nation. President Obama and his party have done little to prepare the nation for those sacrifices while their Republican opponents have done even less. But facing up to the nation's long-term obligations will be impossible without a stable and growing economy, and for now that requires more, not less, government spending.