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Getting back to even on jobs divides US leaders

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TOM RAUM
September 7, 2011
— America's sickly economy can be healed with jobs, jobs and more jobs. On that, everyone agrees. Figuring out how to produce them is what is stumping everyone.

Other than letting time take its course, Washington lacks a clear answer on how to create permanent new jobs on a national scale. Forecasters suggest it will take 20 million new jobs over the next 10 years just to repair recession damage and to keep pace with adult population growth.


Recent streams of bleak employment and economic data drive home the difficulty of the challenge.


As President Barack Obama prepares to tackle jobs issues in a speech to Congress on Thursday, deep divisions persist among economic policymakers on just how to spur job growth. The speech comes as national polls show a clear majority of those surveyed say they disapprove of the way Obama is handling the economy.


Lots of schemes have been tried or floated first under Republican President George W. Bush and now under Democrat Obama. More than $2 trillion has been plowed into stimulus spending, loans and bailouts to banks, auto companies and other corporations, tax cuts for individuals and businesses, mortgage refinancing assistance and aid to state and local governments.


But so far, the needle has barely moved on unemployment, which has stayed near or above a frightening recession-level 9 percent for 29 months. It was 9.1 percent in August, same as the month before, with zero net job gains during the month.


"Neither side can make a definitive case that they really know what they're doing," said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and top economic adviser to 2008 GOP presidential nominee Sen. John McCain.


Holtz-Eakin said that while different theories abound, economists have yet to satisfactorily explain business cycles, predict the duration of recessions or explain why some nations' economies grow while others do not. "It's complicated by the fact that we don't live in a textbook world and that, in fact, the government's capacity to do stuff is not infinitely wide."


Obama favors a mix of new short-term deficit spending on tax breaks and jobs programs, including ones for roads, bridges and other infrastructure, to keep the economy from falling back into a recession, combined with longer-term steps to trim ballooning deficits.


The need for infrastructure jobs is one of the few areas where there's anything approaching consensus. The concept has won the support not only of Obama, but such rival groups as the U.S. Chamber of Commerce and the AFL-CIO. The differences come in how to pay for it.


The administration is running out of ammunition to invigorate the economy before the November 2012 presidential election, especially with a Congress that seems geared to block any Obama measures that increase government spending. The Federal Reserve also has few options left, having kept interest rates at near zero for more than two years.


Republicans, who now control the House, overwhelmingly oppose further stimulus measures and are emphasizing deep spending cuts and eliminating regulations they claim discourage business expansion and job creation. Catering to the tea party movement, these Republicans say the private sector, not the government, is the engine of growth and should be allowed to function without government meddling.


Republicans have been out singing the praises of limited government and bashing Obama's economic policies.


With Congress now back from its summer break, Republicans will "focus on how we stop the federal government from making it so difficult for small business people to create jobs," said Majority Leader Eric Cantor, R-Va.


On Obama's left, liberal Democrats are clamoring for even more anti-recessionary spending than he has supported, saying measures enacted thus far have fallen short, given the magnitude of the downturn.


They can't all be right.


Some 16 million Americans are jobless, nearly half of them for more than six months. The number of unemployed and underemployed is some 25 million, or 16 percent of the adult population. There is but one job available for every four job seekers.


Yet there are flaws in both Democratic and Republican prescriptions for healing the economy and generating jobs.


For example, amid GOP assertions that getting the government's fiscal house in order will restore business confidence and private-sector jobs, recession-induced belt-tightening by the federal, state and local governments has resulted in widespread layoffs in the public sector.


"That's not really the way to move forward," said Lawrence Mishel, president of the labor-leaning Economic Policy Institute. For instance, even August's meager 17,000-job gain in the private sector was completely erased by lost public-sector jobs.


Many big corporations have ample cash on hand they could use for hiring, but there is little reason to do so. "There is an across-the-board lack of demand for workers," labor economist Heidi Shierholz said.


Why would a company invest to build a new plant and equipment if there's nobody to buy what is produced? It's a vicious cycle: Businesses won't hire because they don't have enough customers. But those out of work aren't shopping because they lack incomes.


On the Democratic side, many of the proposals expected to be announced by Obama, such as putting construction crews to work on road, bridge and other infrastructure projects and hiring workers to repair public schools, would be, by their very nature, temporary ones. And spending done now must still be paid for later, which is hard to do with a national debt soaring toward $14.7 trillion.


Obama also is putting emphasis on creating new jobs by exporting more, calling for approval of more free-trade agreements and seeking to double exports within the next five years. But with global markets soft, the world's top exporters China, Japan and Germany also hope to boost their lagging exports. It's a mathematical impossibility for all major trading partners to boost exports at the same time.


A major obstacle to job creation is the "mismatch between the jobs being created and the skills of those people who are unemployed," said Rob Shapiro, a former undersecretary of commerce in the Clinton administration. He hopes Obama will include job retraining programs in Thursday's speech, especially in the area of information-technology training for adults.


Citing unexpected weaknesses in the economy, White House forecasters a few days ago said unemployment will persist at around 9 percent well into the 2012 election season, revising their contention as recently as June that it would drop to about 8.3 percent next year. Some private forecasts are even gloomier.


Getting back to pre-recession jobless rates of below 5 percent last seen in 2007 may be a thing of the past.


"I think we'll get down to 5.5 to 6 percent unemployment and that will be the 'new normal,'" said economist Mark Zandi of Moody's Analytics. "It will take us to the mid-part of the decade to get there, but I think we will get there."


But Zandi, who has advised both Republican and Democratic lawmakers, said it also "depends on policymakers getting it roughly right."


It's the getting it right part that's such a tall order.



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