Rebuilding our economy around the middle class
My warning bells went off when I heard CNBC anchor Erin Burnett make the statement on last Sunday’s Meet the Press that we have “the fastest job creation in this recovery than you have in any recession in 25 years.” Like her onscreen colleague National Review’s Rich Lowry, I was eager to find her source for her claim. After all, haven’t we been told over and over again (by Lindsay Graham, for example) that this has been a jobless recovery? That the stimulus failed?
Turns out, according to recent Department of Labor findings (summarized in this article), job creation has started sooner after the end of this recession than in any other in the last 25 years - just as Erin Burnett said.
According to the article, here’s how it breaks down:
“After the 1990-91 recession ended, the economy lost nearly 300,000 additional jobs in the 11 months that followed. And the 2001 recession was followed by a so-called jobless recovery that lasted for nearly two more years.
“‘Sustained, positive job formation began earlier in this recovery than in the prior two recoveries,‘ said Lakshman Achuthan, managing director of Economic Cycle Research Institute.”
Many economists, including the nonpartisan Congressional Budget Office, attribute these jobs to the stimulus money working through our economy. As I’ve argued before, this indicates that the stimulus spending has been successful at moving the economy from recession to recovery.
But the economy has not recovered enough
Still, the economy has not recovered enough for unemployment rates to return to pre-recession levels. As the CBO has shown, we’re in a better position than we would have been, but we need to do better.
Paul Krugman, in a recent New York Times Op-Ed, argued – as he and many other economists have been for more than a year – that the problems in our economy result from the stimulus having been too small. And it’s not just East Coast elites who think this way. As I mentioned in a previous post, Krugman’s argument jives with what NMSU economists believe as well. Krugman goes on to argue that the policy solution that we must support is another stimulus package:
“The actual lessons of 2009-2010, then, are that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn’t applied on a sufficient scale. And we need another round.”
As an aside for those interested, Krugman also argues that the evidence indicates that inflation is not a concern for us right now. He also discusses how Germany’s recent employment gains have resulted not from austerity measures (which are all in the future) but rather from “strong unions and government policy have prevented American-style mass layoffs.”
Nonetheless, despite having the fastest job growth since the end of a recession in the past 25 years, our economic recovery remains tenuous (especially as stimulus money begins cycling out of the system). Economists attribute this to the sheer depth of the recession:
“There were 8.4 million jobs lost in 2008 and 2009 – roughly 7% of all jobs at the start of the recession. That compares to a loss of 3.1% of all jobs during the 2001 recession and the jobless recovery that followed, and only 1.9% of jobs lost during and after the 1990-91 recession.”
In other words, there was a historically big hill to climb out of. I’m reminded of being a teenager and dirt biking with my dad and brother. I was pretty good on the bumps and whoops, on account of having strong legs. But I’d often make the mistake of not giving the bike enough gas to get up the big, steep hills we liked to climb behind our house. I was afraid I’d lose control of the bike so I drove conservatively. On the steepest, highest hills, just like my dad had warned, I would often run out of power two-thirds up. The engine would die, and I was stuck on the side of the hill trying to kick start this stubborn, old motorcycle.
We’ve allowed the economy to wallow in a similar way, and made our fellow Americans’ suffering worse by doing so. After all, as NMSU economist Dr. Jim Peach said, “We know how to fix this problem.” More stimulus can be the fuel our economy needs to get out of this deep, historic hole we’re in.
Another reason our economic recovery remains fragile is that the Bush and Obama administrations’ bailout and stimulus policies were overly optimistic. They hoped that positive economic momentum would goose both consumers and businesses into spending again. Unfortunately, low consumer confidence (resulting partly from, as I’ve argued earlier, mischaracterizations about the success of the stimulus) has resulted in low consumer spending. Meanwhile, despite having access to cash or loans, many businesses are enjoying their increased productivity and choosing not to hire.
Many economists of different stripes, from Paul Krugman to NMSU’s own, argue that more stimulus is needed. Politico.com reports that President Obama and his economic team are considering additional emergency initiatives that will pump money back into the economy, such as a research and design tax credit and a small business bill. Unfortunately, as a key tactic in their electoral strategy, Republicans have been effective at not only blocking these initiatives but also misrepresenting their effectiveness.
Many commentators believe that after the midterm elections, a spending bill will be approved (as that’s more politically feasible than some of the other Republican ideas, such as slashing Social Security). Let’s hope so.
Rebuild our economy around the middle class
Another good move for our economy would be to rebuild our economy to support and strengthen the middle class. As I’ve argued before, the middle and lower classes are losing ground while the rich get richer. This is bad in an economy that is so dependent on consumer spending.
First thing is to use direct government investment to develop the well-paying manufacturing and infrastructure jobs that we’ve lost in this country. We have to make something that people want. China and Germany have taken the lead on building the components for renewable energy technology. But we can and must catch up.
Another way to rebuild our economy around the middle class is to restructure the tax code so that the wealth doesn’t flow disproportionately to the rich, as it does now. According to many experts including Robert Reich and our own NMSU economists, the rich have distorted the system so that the wealth flows unfairly to them.
Considering the dire straits that our economy is in, the hefty debt still accumulating from our wars in Iraq and Afghanistan, and our faltering infrastructure and struggling schools, it’s unlikely that the wealthiest 1 or 2 percent of Americans will protest allowing their tax rates to return to Clinton-era levels. After all, they’ve benefited as much as anyone from the blessings and opportunities that come with being American.
Here’s how Reich puts it:
“Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.”
Stimulus spending will spur economic growth in the short-term. Rebuilding our middle class will resolve our long-term deficit issues. Whether by bailing out overextended banks, propping up bad businesses, or spending blood and treasure at war, most of us have been asked to sacrifice. It would be unseemly in the face of so much shared suffering for the wealthiest among us to refuse to shoulder their share of the burden.
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