Answer: J-O-B-S 

As reported in this space last week, there is a growing consensus that the federal stimulus package pushed through at the beginning of the Obama presidency helped arrest the freefall that had gripped the American economy.

Here’s IHS Global Insight Chief Economist, Nigel Gault, as quoted in the New York Times last Saturday:

“It was worth doing — it’s made a difference. I don’t think it’s right to look at it by saying, ‘Well, the economy is still doing extremely badly, therefore the stimulus didn’t work.’ I’m afraid the answer is, yes, we did badly but we would have done even worse without the stimulus.”

The article went on:

“In interviews, a broad range of economists said the White House and Congress were right to structure the package as a mix of tax cuts and spending, rather than just tax cuts as Republicans prefer or just spending as many Democrats do. And it is fortuitous, many say, that the money gets doled out over two years — longer for major construction — considering the probable length of the “jobless recovery” under way as wary employers hold off on new hiring.”

In other words, given a narrow choice between the market fundamentalist recommendation of doing essentially nothing and a middle-of-the-road plan to do at least something, the President and his team made the right call. Had they opted for the Hooverite, head-in-the-sand approach, there can be little doubt that the country would be enveloped in a second Great Depression by now.

The only problem with the President’s decision at the time was its failure to give more serious consideration to an even more progressive and ambitious approach that would have sought not just to arrest the freefall, but to forcefully reverse it.

This is the argument voiced so persuasively (both then and now) by expert economists like James K. Galbraith, Paul Krugman and Dean Baker. The stimulus was okay, insofar as far as it went; it just didn’t go far enough. Put another way, when the house is burning down, it’s no time to worry too much about your ground water supply. Get the fire out first.

Here’s Krugman (writing last December) about the dangers of trying to promote economic recovery on the cheap:

“The idea that tight fiscal policy when the economy is depressed actually reduces private investment isn’t just a hypothetical argument: it’s exactly what happened in two important episodes in history.

The first took place in 1937, when Franklin Roosevelt mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.

The second episode took place 60 years later, in Japan. In 1996-97 the Japanese government tried to balance its budget, cutting spending and raising taxes. And again the recession that followed led to a steep fall in private investment.”

Implications for the present (and North Carolina)

So, here we are – 10 months into the Obama presidency – and the reality (and dangers) we face comport quite neatly with what the progressive economists had forecast and fretted about. We’re not in a second Great Depression, but things remain very bad. Unemployment in North Carolina stands at 11percent and while that’s better than 15 or 20 percent, it sure isn’t the recovery we need. Meanwhile, the state’s public coffers remain distressingly empty – thus badly limiting its ability to help fight the fire.

What to do? Put on the brakes like FDR in ’37 and the Japanese in the mid 90’s or redouble our efforts by transforming a weak, water-treading recovery into a robust, full-blown, job creating turnaround? And if the latter: How?

The answer is that Congress and the President must enact policies that preserve and create large numbers of jobs as quickly as possible – most notably direct assistance to folks in need and fiscal relief for state governments. As Chad Stone of the Center on Budget and Policy Priorities notes in a recent report (“Relief for States and Struggling Families Provides Substantial Boost to Employment”), these are probably the two best ways to quickly boost economic demand and thereby employment.

Temporary assistance like unemployment insurance benefits and food stamps produces a large and immediate “bang for the buck” because “the money gets spent fast, and its effects then spread the economy.” 

State fiscal relief produces similar results:

“By taking action now to extend [American Recovery and Reinvestment Act] assistance to states into 2011, lawmakers can reduce the drag that very large state budget cuts and tax increases would otherwise impose on economic activity and jobs and thereby give the recovery a better chance of gathering strength.”

Stone notes that other policies may not be as timely or effective. Among these, he includes: slow starting infrastructure investments, tax cuts for higher income individuals, and tax cuts for businesses (which needs demand more than they need cash).

Public sector job creation can be helpful, but only if it doesn’t come at the expense of direct state and individual assistance. 

Dean Baker has also written very persuasively on the idea of quickly boosting employment via a “job sharing tax credit” that would incent employers to reduce employee hours while keeping compensation constant.        

Prospects for success

So is there any hope? Will Washington enact a large and effective “second stimulus” or even something like Baker’s ingenious job sharing credit? James Galbraith is not overly optimistic:

“Technically it would have been fairly easy, 10 months ago, to get this bus back on the road. There could have been open-ended fiscal assistance to stop the budget hemorrhage of the states and cities. There could have been a jobs program and effective foreclosure relief. There could have been a payroll tax holiday. There could have been a strategy for sustained massive effort on infrastructure, energy and climate. There could have been prompt corrective action to resolve, instead of coddle, the worst of the banks….

Can anything be done now? Well yes, technically: the same steps that could have been taken in January 2009 could be taken in January 2010. But they won't be, because for the moment we are seeing the inventory bounce, a productivity surge, real GDP growth, and other "good signs." So we'll be told to wait, to be patient, and to make sure we don't buy what we can't afford. And double-digit joblessness will linger on, breeding frustration and anger…”

Galbraith may be right. The toxic and congested political arena may simply not have enough oxygen left right now to sustain a bold new initiative on jobs.

On the other hand, nothing is written in stone and progressive forces are mobilizing. Last week, a large and powerful collection of progressive advocacy groups including the AFL-CIO and NAACP weighed in with just such a demand. (Click here to read the AFL’s five point plan.) When this fact is paired with the repeated and clear-headed recommendations of respected experts like the Center on Budget, there’s reason to believe that the move that afoot in Congress to advance a second stimulus in December or January is genuine and viable.

Let’s hope so. They may be bystanders to the drama in Washington, but the half-million or so out-of-work North Carolinians have a right to expect meaningful relief sooner rather than later – especially when their elected officials know how to spell the answer to what ails them.