Paul Krugman thinks Washington should drop its phoney preoccupation with things like debt and inflation and get down to the real issue–employment.
I agree. Unfortunately, the political-economic tides have been running in the other direction for over three decades. Between 1932 and 1980, American presidents tried to bring the nation as close to full employment as possible–it was their primary preoccupation. In his book, The Great Inflation and Its Aftermath: The Past and Future of American Affluence, Washington Post economics columnist Robert Samuelson argues that everything changed for the better following the recession of 1980. The goal of full employment was replaced by the goal of stimulating economic growth by controlling inflation and creating a corporate-friendly environment.
Samuelson gives Paul Volcker, the fed chairman appointed by Jimmy Carter and kept on by Ronald Reagan, for making this happen. Volcker intentionally sent the economy into a painful recession to break the inflation cycle. Reagan’s greatness, in this view, was giving Volcker permission to do his thing.
Samuelson thinks Volcker laid a foundation for solid and sustained economic growth. I’m not convinced. Do you ever get the feeling that the American economy has been subsisting on bubbles since the early Clinton administration? First it was the tech bubble. When that popped, the housing bubble took its place. When the housing bubble went ‘poof’ in 2007, there was nothing left to drive the American economy. Not only did trillions of dollars of wealth disappear in the twinkling of an eye, no one knows how to refire the economic engine.
So, although I agree with Paul Krugman that we need to return to the traditional focus on employment, I’m not optimistic. You can’t make that happen without introducing a whole new economic and political model–and Mr. Obama, for all his virtues, is probably not the man for that job.
On the other hand, if the economy remains in the ditch six months from now, Obama may have nothing to lose by beating the job creation drum.
We can’t get meaningful criminal justice reform in this country until we address the employment issue. Mass incarceration has many parents, but the big driver was precisely the new economic reality bequeathed to us by Mssrs. Volker and Reagan. With unemployment rates sky high in poor black neighborhoods, a public policy response was required. A new punitive consensus made it impossible to focus on job creation and other program initiatives in poor neighborhoods. The only solution was to change the subject to drugs and then focus obsessively on neighborhoods devastated by the new economy.
Until we exchange that punitive consensus for what Friends of Justice calls a “common peace consensus” alternatives to mass incarceration will gain little political support.
And now, back to Mr. Krugman.
By PAUL KRUGMAN
In case you had any doubts, Thursday’s more than 500-point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things.
It’s not just that the threat of a double-dip recession has become very real. It’s now impossible to deny the obvious, which is that we are not now and have never been on the road to recovery.
For two years, officials at the Federal Reserve, international organizations and, sad to say, within the Obama administration have insisted that the economy was on the mend. Every setback was attributed to temporary factors — It’s the Greeks! It’s the tsunami! — that would soon fade away. And the focus of policy turned from jobs and growth to the supposedly urgent issue of deficit reduction.
But the economy wasn’t on the mend.
Yes, officially the recession ended two years ago, and the economy did indeed pull out of a terrifying tailspin. But at no point has growth looked remotely adequate given the depth of the initial plunge. In particular, when employment falls as much as it did from 2007 to 2009, you need a lot of job growth to make up the lost ground. And that just hasn’t happened.
Consider one crucial measure, the ratio of employment to population. In June 2007, around 63 percent of adults were employed. In June 2009, the official end of the recession, that number was down to 59.4. As of June 2011, two years into the alleged recovery, the number was: 58.2.
These may sound like dry statistics, but they reflect a truly terrible reality. Not only are vast numbers of Americans unemployed or underemployed, for the first time since the Great Depression many American workers are facing the prospect of very-long-term — maybe permanent — unemployment. Among other things, the rise in long-term unemployment will reduce future government revenues, so we’re not even acting sensibly in purely fiscal terms. But, more important, it’s a human catastrophe.
And why should we be surprised at this catastrophe? Where was growth supposed to come from? Consumers, still burdened by the debt that they ran up during the housing bubble, aren’t ready to spend. Businesses see no reason to expand given the lack of consumer demand. And thanks to that deficit obsession, government, which could and should be supporting the economy in its time of need, has been pulling back.
Now it looks as if it’s all about to get even worse. So what’s the response?
To turn this disaster around, a lot of people are going to have to admit, to themselves at least, that they’ve been wrong and need to change their priorities, right away.
Of course, some players won’t change. Republicans won’t stop screaming about the deficit because they weren’t sincere in the first place: Their deficit hawkery was a club with which to beat their political opponents, nothing more — as became obvious whenever any rise in taxes on the rich was suggested. And they’re not going to give up that club.
But the policy disaster of the past two years wasn’t just the result of G.O.P. obstructionism, which wouldn’t have been so effective if the policy elite — including at least some senior figures in the Obama administration — hadn’t agreed that deficit reduction, not job creation, should be our main priority. Nor should we let Ben Bernanke and his colleagues off the hook: The Fed has by no means done all it could, partly because it was more concerned with hypothetical inflation than with real unemployment, partly because it let itself be intimidated by the Ron Paul types.
Well, it’s time for all that to stop. Those plunging interest rates and stock prices say that the markets aren’t worried about either U.S. solvency or inflation. They’re worried about U.S. lack of growth. And they’re right, even if on Wednesday the White House press secretary chose, inexplicably, to declare that there’s no threat of a double-dip recession.
Earlier this week, the word was that the Obama administration would “pivot” to jobs now that the debt ceiling has been raised. But what that pivot would mean, as far as I can tell, was proposing some minor measures that would be more symbolic than substantive. And, at this point, that kind of proposal would just make President Obama look ridiculous.
The point is that it’s now time — long past time — to get serious about the real crisis the economy faces. The Fed needs to stop making excuses, while the president needs to come up with real job-creation proposals. And if Republicans block those proposals, he needs to make a Harry Truman-style campaign against the do-nothing G.O.P.
This might or might not work. But we already know what isn’t working: the economic policy of the past two years — and the millions of Americans who should have jobs, but don’t.