Monday, August 8, 2011

Whither Washington?

Here are some interesting bits from an article in The New Yorker magazine:
Friday’s payroll report for July showed that nearly fourteen million Americans are out of work, and more than six million of them have been jobless for more than six months. Those figures were slightly better than expected, but that just reflects how low expectations have sunk. Arriving a day after the Dow tumbled more than five hundred points—and just hours before Standard & Poor’s took the unprecedented step of downgrading the U.S. bond rating—the figures confirmed, if further confirmation was needed, that the country is facing an immediate economic crisis. But, even after the rating downgrade, it isn’t primarily a crisis of debt ceilings shattered, government spending gone wild, or any of the other hobgoblins that have dominated the discussion in the nation’s capital. It is, as President Obama acknowledged again last week, a crisis of jobs and prosperity.

For more than two years, the unemployment rate has been close to or above nine per cent. (That is the official rate; if the government counted people who have given up looking for work or who have been forced to work part time, the rate would be sixteen per cent.) And it’s not just the labor market that is frantically signalling distress. The gross domestic product, after growing modestly in 2009 and 2010, has hardly expanded at all this year. Consumer spending has stalled. In many places, house prices are still falling. On Wall Street, there is renewed talk of a double-dip recession.

A political system that responded rationally to the country’s problems would be concentrating on creating jobs. Washington is moving in the opposite direction: toward austerity and job cuts. In the past few months, the 2009 stimulus program has started to wind down, and the Federal Reserve has withdrawn its emergency-support operation, which pumped money into the financial system.


In pushing the government to the brink of default, the House Republicans adopted outrageous tactics. Those tactics worked politically, but at great cost to the country. The debt downgrade was a direct result of the political paralysis in Washington. In retrospect, the White House erred last December in not demanding a raise in the debt ceiling as the price of extending the Bush tax cuts. Failing that, Obama should have refused to bargain with the House Republicans and threatened, if necessary, to raise the debt ceiling by administrative order, citing the Fourteenth Amendment.

But this was more than a failure of tactics: it was a failure of strategy. After last year’s midterm elections, when the Tea Party swept into Washington, the Administration moved toward fiscal conservatism, proposing four trillion dollars in deficit reduction over twelve years. This proposal depended on two assumptions: that Republicans would negotiate in good faith, considering tax increases as well as spending cuts; and that the economy was strong enough to sustain an expansion in the face of a shift to austerity policies.

Now that those assumptions have proved to be alarmingly false, the President, while not ignoring the imperative of long-term debt reduction, must return to the economics of growth.


On Wall Street, unlike in Washington, there is general agreement that the 2009 stimulus package was one of the main reasons that the economy expanded, however slowly, in the past couple of years. So suggestions that a new jobs package would spook the markets are without foundation. Even now, after the bond downgrade, the markets and credit-ratings agencies would probably embrace a carefully costed package that is limited in duration, because it makes economic sense. The quickest way to reduce the budget deficit is to get potential taxpayers back to work.

The real barrier to a meaningful jobs program is not the markets or the ratings agencies but the G.O.P.
The only real solution to the economic malaise and the Little Depression in the US is to vote out all the Republicans in the 2012 election and to find somebody to replace the flailing and incompetent Obama. The US needs a real leader, with a real vision, and with the guts and fire in the belly to fight the political fight to get things done in Washington.

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