The crisis is jobs, not deficits

Yes, we have a serious need to reduce spending over the long-term - with rising health care costs in both private and public markets the key area that appears out-of-control.

But at this point in a weak, essentially "jobless" recovery, the focus on deficit reduction is a fool's errand.  This entire deficit debate has been generated, cynically, by a GOP that has put their fetish for fiscally profligate tax cuts over balancing budgets.

Underlying the GOP's apparent cognitive dissonance on fiscal matters is a long-term strategy to use a deficit crisis to destroy essential government social programs.  In the nearer term, their aim is to weaken the President even if it means economic ruin.

Clinton administration economic advisor Laura Tyson brings some sensible thought about serious priorities into the heated atmosphere of deficit hysterics and debt-ceiling roulette - smokescreens obscuring our very real problems that, frankly, too many Democrats have bought into:

Long term, the United States faces a fiscal challenge that must be tackled –- but it is not an immediate fiscal emergency. In the labor market, though, there is an immediate crisis, the worst since the Great Depression...


(W)ith substantial excess capacity in the economy, there is no evidence that the federal deficit is driving up interest rates and crowding out private spending. What’s slowing the pace of recovery is not too much government borrowing but too little private spending.

Nor are there symptoms of an imminent sovereign debt crisis facing the American government over the next few years. Rather, worries about slower growth in the United States, along with a flight to safe assets and a reduction in risk appetite by global investors, have kept the federal government’s borrowing rates near historic lows.

And that’s despite threats by irresponsible members of Congress to initiate a default on the government’s debt by failing to pass an increase in the debt limit.

In the labor market, the situation is dire. Almost 14 million people –- 9.1 percent of the labor force –- were unemployed in May. About 45 percent of those had been unemployed for 27 weeks or more, according to the Bureau of Labor Statistics. Another 8.5 million part-time workers wanted but could not find full-time jobs; an additional 2.2 million dropped out of the labor force because they could not find work.

During the last five years, the percentage of the population working has fallen to 58 percent from 63 percent, reducing the number of Americans with jobs by 10 million.

The economic and human costs associated with the jobs crisis are staggering. An extended period of unemployment means lower earnings: workers who return after long-term unemployment earn 20 percent less over the next 15 to 20 years than a worker who was continuously employed.

The longer workers are unemployed the more likely they are to lose their skills and drop out of the labor force. And the longer workers are unemployed, the more likely they are to lose their homes, their health and their marriages –- and the more likely their children will grow up in poverty –- with adverse implications for their health, education, and future incomes.

The primary cause of the jobs crisis is a lack of demand, the same problem that bedeviled the economy in the 1930s. Consumers, long the primary engine of economic growth in the United States, are in the midst of an unprecedented retrenchment.

High debt levels, falling housing prices, a lack of employment opportunities and wage stagnation are forcing people to curb their spending, pay down their debt and increase their saving. In the 13 quarters since the beginning of 2008, the annual growth of real consumption, which still accounts for about 70 percent of gross domestic product in the United States, averaged just 0.5 percent. Not since the end of World War II has consumption been this weak for this long.

Speaker John A. Boehner and the Republican majority in the House say the way to address the immediate jobs crisis and the long-term fiscal challenge is to make deep cuts in federal spending. Indeed, a recent study by the Republicans on the Joint Economic Committee concluded that “quick, decisive government spending reductions” can promote growth and jobs in the short term.
But the overwhelming evidence suggests the opposite: when the economy has excess capacity, high unemployment and weak private demand, cuts in government spending reduce growth and eliminate jobs...