THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING
Robert Kuttner

Hire deficits

Until people start working, the economy won’t

By Robert Kuttner
May 11, 2010

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THE GOOD NEWS is that the private sector created 231,000 jobs in April. The bad news is that unemployment rose from 9.7 to 9.9 percent because more people are seeking work — over 800,000 entered the labor force in April, dwarfing the increase in jobs. The true unemployment rate is over 17 percent if you count part-time workers who want full-time jobs plus those who have given up because the job search has become pointless, with more than five applicants for every job opening.

The economy needs a half million new jobs every month for the next four years, just to return to the prerecession unemployment rate of 2006. And that economy was nothing to brag about, with average wage growth lagging behind inflation since 2001.

Perversely, austerity has become the cure du jour. Top administration officials say there will be no new jobs initiative, because deficit reduction is needed to reassure the bond market. President Obama’s new fiscal commission is expected to recommend cutting services and raising taxes.

You have to wonder if the Obama economic team is talking to the political team. If the Democrats suffer a blowout in the November midterm elections and Obama risks being a one-term president, the biggest reason will be persistently high unemployment.

The issue of jobs has simply dropped off the radar screen. Obama tackled health care, and now he is focused on banking reform, immigration, and nuclear proliferation, which are all necessary causes — but he will live or die politically based on whether he can get more jobs and more good jobs created, with some measurable gains by November.

We seem to have settled into a pattern reminiscent of the late 1930s. Economic growth has turned positive — it was a respectable 3.2 percent in the first three months of 2010 — but today’s growth generates too few jobs. Why is that?

The aftermath of the financial blowout has left employers hesitant about hiring permanent workers. Consumers are buying again, but with high unemployment, flat wages, depressed pensions, and depleted home equity, they aren’t buying enough. Managers are working existing employees harder rather than hiring new ones.

For two decades, employers increasingly used outsourcing and off-shoring to cut their labor costs. That trend accelerated after the financial collapse. Many economists wonder whether permanent payroll jobs will ever return to their former level if present trends continue.

Overseas, Greece has agreed to a stringent budget-cutting program as the price of getting emergency aid from the European Union and the International Monetary Fund. Many British commentators have described their next government as a “poisoned chalice,’’ because the new prime minister will pursue hugely unpopular belt-tightening. At home, states are cutting jobs and services.

But the austerity cure slows growth, raises joblessness, and makes debt-reduction more painful. It’s better to restore high rates of growth and employment. Then, after recovery comes, we can balance the budget at a higher level of economic output.

In the late 1930s, Franklin Delano Roosevelt tackled joblessness with his public works programs. These were palliative, but the permanent cure was a massive economic recovery — as byproduct of World War II. When the war came, we damned the torpedoes and the deficit worries, and spent whatever it took to defeat the Nazis and the imperial Japanese.

Debt increased massively, but economic growth shot up to 12 percent a year for the four war years, and unemployment disappeared. The war also brought huge investments in manufacturing technology. That twin stimulus powered a 25-year postwar boom, and the war debt was easily paid down.

The war was also a big boost for labor, and not just because of the plentiful jobs. Roosevelt’s War Labor Board insisted that any company bidding for a defense contract treat its workers decently and not bust unions.

Obama’s challenge today is to define the economic equivalent of World War II — without the war — and inspire citizens to support it. Lately, the news has been dominated by the Boston water main break, the oil spill in the Gulf of Mexico, and layoffs of teachers. There is no shortage of candidates for public investment in infrastructure, renewable energy, advanced industry, and decent public services.

Instead of joining the austerity parade, Obama should be committing his administration to higher growth, public renewal, and good jobs.

Robert Kuttner’s new book is “A Presidency in Peril.’’ He is co-editor of The American Prospect and a senior fellow at Demos.

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