A Few Steps Short on Jobs
One of the political mysteries of the last year is why the White House and Congress have not been even more aggressive about trying to put people back to work.
It is true that President Obama and Democratic leaders in Congress favor more stimulus and have been stymied by Republicans and, more recently, conservative Blue Dog Democrats worried about the deficit. But it’s also true that Mr. Obama, Nancy Pelosi and Harry Reid have done less than they could have.
The president has not wrapped his arms around teachers, firefighters and other government workers facing layoffs and dared Republicans to oppose him, much as he did with financial reregulation. He has not pushed for a big new round of tax cuts, which could also put Republicans in a bind. And the White House has been slow to fill vacancies at the Federal Reserve that could go to officials who favor the Fed’s doing more to lift economic growth.
None of these steps would have cured the job market on their own. The aftermath of the financial crisis was always going to be long and harsh. Still, the Democrats find themselves in the position of heading into a midterm election campaign with the unemployment rate near 10 percent, knowing that they have not done everything in their power to bring it down.
Publicly, Mr. Obama’s advisers reject this description. “Job creation and economic recovery were and remain President Obama’s top priority,” Lawrence Summers said recently. Mr. Obama is now lobbying the Senate to pass a larger jobs bill than the House passed two weeks ago and pushing for an energy bill that could also create jobs.
But when they are not speaking for quotation, some White House and Congressional officials acknowledge that they could have done more to stimulate the economy, and sooner. In part, they have been busy with other things: legislation on health care, finance and education that could shape the economy for decades to come. The bigger reason, though, is politics.
In the face of near-united Republican opposition, top Democrats have decided that the political costs of aggressively pushing for more stimulus are too high. Any new bill will help only on the margins, and it will give Republicans another chance to blame Mr. Obama for the deficit, even though the current deficit is more of their own party’s making. The Democrats may be right, too. We will never know, because we will never be able to re-run the 2010 election under a different set of circumstances.
Yet the current circumstances bring their own political risks and their own economic costs, especially for anybody who is out of work or soon may be.
If there was any doubt that the government could put people to work, at least temporarily, last year’s $787 billion stimulus program should have removed it.
The bill passed in February 2009, when the economy was shedding more than 700,000 jobs a month, and it was greeted with considerable skepticism. Some economists went so far as to suggest it would hurt the economy. Michael Boskin, a Stanford professor and former aide to the first President Bush, wrote an opinion article in The Wall Street Journal on March 6, 2009, blaming Mr. Obama and his policies for the stock market’s drop in previous weeks.
Soon, though, job losses began shrinking. The details — a rebound in state spending, an increase in corporate investment and a spurt in home sales helped by tax credits — suggested that the stimulus bill was a major cause. The Congressional Budget Office and private research firms estimate that the bill has added on the order of 2.5 million jobs. Since Mr. Boskin’s op-ed article appeared, stocks are up 56 percent.
But the stimulus has been less popular than effective, polls show. People see that the economy remains in bad shape, and they have a hard time getting excited by the notion that it could be worse.
These lukewarm views have then been aggravated by the country’s very real deficit problem. The federal government has promised to pay out vastly more in Medicare, Medicaid and Social Security over coming decades than it will collect in taxes. Any additional stimulus would only increase the deficit.
Of course, it would have a much smaller impact on the deficit than the 2001 and 2003 tax cuts, the bipartisan Medicare prescription drug program or the wars in Iraq and Afghanistan did. The bond market, for its part, remains utterly calm about the near-term deficit, based on the government’s extremely low borrowing costs.
But the political dynamic is set. Voters are wary of stimulus and worried about the deficit. Almost nobody in Congress is agitating for the ideal economic solution: a combination of short-term stimulus with longer-term spending cuts and tax increases. It’s easier just to express somber concern about both the deficit and jobs.
Against this backdrop, Mr. Obama and his aides decided not to go all out for more stimulus.
The one part of their strategy that seems almost impossible to defend is their approach to the Fed. By law, the Fed’s mission is to maintain low inflation and maximum employment. Over the last three months, inflation has been zero. Over the last two years, it has risen at the slowest pace in more than 50 years. Meanwhile, 15 million people remain unemployed.
Yet the Fed has taken no recent action to spur the economy — like buying bonds to reduce long-term borrowing costs for households and businesses, as Joseph Gagnon, a former Fed economist, has urged. And the White House and Treasury Department have allowed two of the seven Fed governor spots to sit empty since Mr. Obama took office. He finally announced nominees on April 29, and they await Senate confirmation.
Despite all this, there is reason to think that more stimulus may finally be on the way. Last Friday’s jobs report showed little private-sector job growth in May, which was a good reminder that recoveries from financial crises are usually rocky. The report has the potential to persuade Congress to expand the jobs bill passed by the House, which is now before the Senate.
As is, the House bill would cut taxes for businesses and temporarily extend jobless benefits, among other things. By the end of the year, it would add about 170,000 jobs, Moody’s Economy.com estimates. Expanding the bill to include extra Medicaid funds for states — which seems politically conceivable — could add 100,000 more jobs. Expanding it to keep teachers employed — which is unlikely — could add 200,000 or so.
Will another half-million jobs make the economy feel strong again? No. Will the next round of stimulus be more popular than the last one? Probably not.
Is it nonetheless the right thing to do? That’s another question entirely.