June 15, 2011
Now that the austerity strategy has led to a double-dip recession in Denmark (which, unlike Greece, is fiscally healthy) and stagnation in the U.K. and the U.S., a new wind may blow in Washington. Until now the Republicans could play around with the culture war, pushing the Obama White House to the wall over structural reforms as the price of raising the debt limit and snookering the mainstream media about the entitlement deficit, but now the latest poll shows the Republican Congress is even less popular than the Democrats and less trusted with entitlement reform than Obama. It’s true that Obama’s approval on the economy is terrible, as it should be, because of the continuing jobs recession, now about 12 million jobs short of full employment. But everyone may lose now.
What’s the path out of this stagnation? Not more public austerity, surely. But the best and brightest in Washington have yet to move beyond the tepid stimulus proposals reviewed by David Brooks (New York Times, June 14, 2011) and David Leonhardt (New York Times, June 15, 2011). President Obama’s Jobs Council, headed by Jeffrey Immelt of G.E. and Kenneth I. Chenault of American Express, punted on helping the unemployed in an op-ed in The Wall Street Journal on June 13: “we will turn to addressing the actions needed to make a more significant longer-term impact”.
The immediate problem is a lack of demand, whatever other structural problems also should be addressed. The need to stimulate demand is a problem that the U.S. government has 70 years of experience addressing with success, when it wants to, but today’s Washington policy-makers can’t see the evidence in front of their eyes because the White House has not challenged the Republicans’ narrative of market fundamentalism, so strikingly on display in the Ryan budget proposal and the New Hampshire candidates’ forum.
Just check the information from the latest reports from the National Federation of Independent Business, the premier or, to taste, notoriously small-minded organization of small and medium size businesses, and the Business Roundtable, the organization of the largest Fortune 500 chief executives. The NFIB reported that for the first time in nine months its members were more inclined to lay-off employees than to hire new workers. The primary reason was poor demand: “we do not hire workers for the sake of hiring workers. We hire them to do jobs. If we don’t have work coming in, nothing will make me hire another person”, said one businessman. (New York Times, June 15, 2011) Is it a coincidence that the University of Michigan’s consumer survey found workers’ expectations for family income was at a record low? These workers’ perceptions are confirmed by evidence that this is the worst wages recovery from a recession since the 1940’s: there have been zero aggregate wage gains even as corporate profits have returned to pre-recession levels. This is on top of the stagnation of median wages since 2000. People simply cannot afford to buy much. But in contrast to the small businesses and workers, the huge companies that are members of the Business Roundtable are flush with cash. The Roundtable reported that its members planned to add employees in the next six months. These companies have better access to credit from the big banks and they do better in world markets. That also means that the jobs they add may be in another country. No doubt this is good news for major stockholders.
The federal government can directly create jobs: this is what the federal government did for decades until the Reagan administration. Until Reagan it was widely perceived that the “free labor market” had never, ever, created full employment. If we want Americans to have jobs, the government must step in. Now more than normally. More tax cuts will not do the trick. Summer youth jobs, infrastructure projects, weatherization and energy-efficiency for urban housing, more teachers and public safety officers, and filling other needs could boost employment, incomes and consumer spending, and tax revenue. Supporting workers’ rights to unionize and bargain collectively would help. So would enforcing the labor standards laws. And raising taxes on the idle incomes of the big companies and recycling that money for community college expansion.
Otherwise, as Joe Strummer put it, free market opportunities are the ones that never knock for the working classes.