John Buell

Jobs and the Honesty Deficit

It is a jobless recovery, if it's a recovery at all,” said Mitt Romney on NBC of the latest employment data. “It really doesn't look like a recovery. If this president's re-elected you're going to see chronic high unemployment continue for another four years or longer.”

If it is a jobless recovery, much of the credit will surely go to Republicans, who have done everything in their power to cripple the current recovery, not out of intellectual/ideological conviction that government is powerless in the face of a major recession but merely in order to maintain or worsen the circumstances in which Obama is running.

Congressional Republicans almost to a person voted against President Obama’s American Jobs Act. Yet surprisingly, economists for both business and labor groups argued that this proposal, which included school repairs, rehiring laid off teachers and first responders, and extended emergency unemployment insurance, would have cut the unemployment rate to nearly 7%. As Mark Zandi of Moody’s Analytic put it: “If fully implemented, the Obama jobs plan would increase real GDP growth in 2012 by 2 percentage points, add 1.9 million jobs, and reduce the unemployment rate by a full percentage point, compared with current fiscal policy.”

Congressional Republicans maintain that whatever the views of labor and business economists, they are sure that “government does not create jobs.” Yet there is good reason to believe that they don’t accept this mantra. The same party that steadfastly rejects government spending for school repairs also defends increased spending for the military on grounds that it creates jobs. Paul Krugman nicely summarizes this case by quoting Romney against Romney: “Obama’s trillion dollar cuts to our military will eliminate hundreds of thousands of jobs, and also put our security at greater risk; … And his trillion-dollar deficits will slow our economy, restrain employment, and cause wages to stall.”

OK, so deficit spending hurts the economy — unless it’s spending on the military, in which case cutting spending destroys jobs..”

The agenda here is transparently political. The same intellectual/academic tools used to justify the job creation potential of military spending are also applicable to domestic infrastructure. Republicans have not even attempted to explain why money spent on tanks creates US jobs whereas money for urban transit does not.

But rather than explain this obvious contradiction, they turn to another favorite conservative line, that fear of future regulations and taxes is deterring new corporate investment. Conjuring up visions of today’s fearful corporate execs may be good strategy. It distracts from talk about the failures of deregulation and tax cuts under George W. Bush to deliver solid growth even before the Lehman Brothers collapse. Just as tellingly, current corporate behavior as well as surveys of corporate CEOs do not reflect such purported concerns. Dean Baker points out: “If the story that regulation was impeding job growth were true, then there should be evidence to support it. For example, we should see firms increasing average hours as a way to avoid hiring workers. We don't: Average weekly hours are still below their pre-recession level. We should be seeing firms hiring temps as a way to avoid hiring more permanent workers. We don't see this, either. Temp employment is still down by almost 20% from its pre-recession level. … We might also expect that businesses would blame regulation for limited growth when they are asked. They don't. The National Federation of Independent Businesses' survey of its members show little change in the percent of businesses that list regulation as a major obstacle from the Bush or Reagan years.”

If the Republican agenda is simply to trot out any argument or policy response to defeat Obama, they also have a longer- term focus. Years of high unemployment coupled with trashing all domestic job creation and regulatory initiatives lay the groundwork for fierce implementation of the neoliberal agenda. Military spending will be ratcheted up and financial regulation, inadequate as it is, will be scaled back. In the face of the continuing unemployment, look for restoration of more Depression era mantras, such as the “natural rate of unemployment,” the notion that markets tend toward a natural rate of unemployment and any effort to boost jobs by government policy only increases inflation.

More crudely, unemployment will be viewed as a voluntary choice only worsened by unemployment compensation, a notion recently articulated by Casey Mulligan. Dean Baker thoroughly dismisses this logic:

“Unfortunately Mulligan provides no evidence to back up his version of reality. By contrast, Jesse Rothstein, an economist at Berkeley, looked at the behavior of unemployed workers. He found that at most, the supply-side effect from the extended duration of unemployment benefits in this downturn increased measured unemployment by 0.1-0.5 percentage points. Furthermore, most of this increase was due to keeping workers looking for work and therefore being counted as unemployed.

"[In addition], since the benefits gave workers tens of billions of dollars that they would not have otherwise, they undoubtedly had a large demand side effect. The Congressional Budget Office estimates the multiplier for unemployment benefits as being 1.6, meaning that the $40 billion a year in extended benefits (roughly the amount at stake) would lead to an increase in GDP of $64 billion or more than 0.4% of GDP. If the increase in employment is proportionate, it would imply 560,000 additional jobs. This would swamp the negative supply side effect that Rothstein found in his research.”

Obama has been smart both economically and politically in pushing his modest job agenda now. Nonetheless, he is not without fault, especially in his neglect of the role investment banks have played in the current crisis. More on this is my next column.

John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email

From The Progressive Populist, October 15, 2012

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