Why Deficit Reduction, Not Jobs and Wages?

fiscal cliff santaWhy Is Washington Obsessing About the Deficit and Not Jobs and Wages?

It was the centerpiece of the President’s reelection campaign. Every time Republicans complained about trillion-dollar deficits, he and other Democrats would talk jobs.

That’s what Americans care about — jobs with good wages.

And that’s part of why Obama and the Democrats were victorious on Election Day.

It seems forever ago, but it’s worth recalling that President Obama won reelection by more than 4 million votes, a million more than George W. Bush when he was reelected — and an electoral college majority of 332 to Romney’s 206, again larger than Bush’s electoral majority over Kerry in 2004 (286 to 251).The Democratic caucus in the Senate now has 55 members (up from 53 before Election Day), and Republicans have 8 fewer seats in the House than before.

So why, exactly, is Washington back to obsessing about budget deficits? Why is almost all the news coming out of our nation’s capital about whether the Democrats or Republicans have the best plan to reduce the budget deficit? Why are we back to showdowns over the deficit?

It makes no sense economically. Cutting the budget deficit — either by reducing public spending or raising taxes on the middle class, or both — will slow the economy and increase unemployment. That’s why the so-called “fiscal cliff” is so dangerous.

In the foreseeable future our government has to spend more rather than less. Businesses won’t hire because they still don’t have enough consumers to justify additional hires.  So to get jobs back at the rate and scale needed, government has to be the spender of last resort.

The job situation is still horrendous. Twenty-three million Americans can’t find full-time work. Less than 59 percent of the working-age population of the nation is employed, almost the lowest percent in three decades. 4.8 million Americans have been out of work for more than six months. The 40-week average spell of joblessness is almost three times the post-1948 average.

And even those who have jobs are finding it harder to make ends meet. Jobs created since the trough of the recession pay less than jobs that were lost. The median wage is 8 percent below what it was in 2000, adjusted for inflation. And wages are still heading downward: Average hourly earnings in October were 3.1 percent below what they were in October, 2010.

This isn’t just an ongoing tragedy for 23 million Americans and their families. It also robs all of us of what these people would produce if they were fully employed – roughly $2 trillion worth of goods and services that won’t be created this year.

These folks would also be paying taxes — and they’d require less unemployment insurance, fewer food stamps, and less public assistance than they do now. According to estimates byBloomberg News, the total cost of those lost tax revenues and the extra social spending is more than twice what taxpayers will shell out this year to pay interest on the federal debt.

In other words, unemployment is hugely expensive. Debt, by contrast, is relatively cheap. The yield on the 10-year Treasury is only about 1.7 percent. Creditors worldwide are willing to lend America money that won’t be repaid for a decade at the lowest rate in living memory.

So why are we debating how to cut the deficit when we should be debating how best to use the cheap money we can borrow from the rest of the world to put more Americans to work?

Because too many Democrats inside and outside the Beltway have ingested the deficit cool-aide that the “serious people” on Wall Street have serving for two decades.

And the President has been all too willing to legitimize their deficit obsession by freezing federal salaries, appointing a deficit commission, and, now that the election is over, going back to deficit-speak.

robert reichA month after the election Obama was on Bloomberg Television saying business leaders need “a deal on long-term deficit reduction” before they’ll increase hiring.

That’s just not true. Before they’ll increase hiring they need customers.

Robert Reich
Robert Reich’s Blog

Friday, 14 December 2012

Comments

  1. JoeWeinstein says

    The reason why Washington is ‘still obsessing’ is that Obama is still Obama – no matter what he – or Romney – said in the campaign. Obama had four years to learn that Keynes wasn’t kidding and that Reich is reasonable and that bloated bankers don’t and needn’t spend to prime the economy but ordinary consumers with money in their pockets do and will. Unable to learn – or anyhow act as if he had learned – in four years, don’t expect Obama to learn within eight years. It’s sad – the guy has a great gift of gab – but don’t expect a guy who’s been on the right of Richard Nixon to lead us anywhere ‘leftward’ of there – even to a tried-and-true centrist position.

  2. harry wood says

    the current government is spending more money than it has. My family can not do that nor can my government. FDR tried spending more than the government had and he needed WWII to save him and us. His sec of tres tried to tell him about the math, no one can spend more than they have, we can not spend 115% of GDP year after year and think the poor and middle class will not sufer.

  3. Joseph Maizlish says

    Reich has explained the economy. On the way to improving that in the realistic and comprehensive terms he suggests, we’ll need to improve our vocabulary. “The deficit” means only one of the many deficits. Others besides the federal government budget deficit are the deficit in health of the population (the amount by which current health status falls short of what the health status would be if all received preventive and treatment care in a timely way), the deficit in housing, in nutrition, education, development of personal potentials, and on and on.

    By the way, trying to fix the officially termed deficit in the rushed way being considered will make the other deficits greater. In the narrow terms in which most political figures are trapped, those other deficits — even the ones translatable into financial figures — aren’t considered part of their responsibility.

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