The Great Recession, Jobs and the Deficit
February 5, 2010 by Michael Leon · 3 Comments
As the Labor Dept report released today revises upward the number of estimated job losses incurred during the Great Recession, economist Paul Krugman warns that a politically motivated focus on short-term deficit reduction is dangerous, assuming the objectives of creating more jobs and slashing long-term future deficits.
Krugman says today that so grave is the crisis that:
[F]ear-mongering on the deficit may end up doing as much harm as the fear-mongering on weapons of mass destruction.
Let’s talk for a moment about budget reality. Contrary to what you often hear, the large deficit the federal government is running right now isn’t the result of runaway spending growth. Instead, well more than half of the deficit was caused by the ongoing economic crisis, which has led to a plunge in tax receipts, required federal bailouts of financial institutions, and been met — appropriately — with temporary measures to stimulate growth and support employment.
The point is that running big deficits in the face of the worst economic slump since the 1930s is actually the right thing to do. If anything, deficits should be bigger than they are because the government should be doing more than it is to create jobs.
Christopher S. Rugaber AP piece on the Labor Dept report is excerpted below:
WASHINGTON (AP) — Job losses during the Great Recession have been huge and they’re about to get bigger.
When the Labor Department releases the January unemployment report Friday, it will also update its estimate of jobs lost in the year that ended in March 2009. The number is expected to rise by roughly 800,000, raising the number of jobs shed during the recession to around 8 million.
The new data will help illustrate the scope of the jobs crisis. Analysts think the economy might generate 1 million to 2 million jobs this year. And they say it will take at least three to four years for the job market to return to anything like normal.
‘It’s going to take a long time to dig out of this hole,’ said Julia Coronado, senior U.S. economist at BNP Paribas.
Wall Street economists expect the January report will show a tiny increase of 5,000 jobs. That would be only the second monthly gain since the recession began. But it probably wouldn’t be enough to hold down the unemployment rate, which is forecast to rise to 10.1 percent. That would match October’s 26-year high. And it would be the fourth-straight month of double-digit joblessness.
The Labor Department’s revisions on employment levels are done every year. They are based on unemployment insurance tax data that companies submit to states.
Jobs remain scarce even as the economy is recovering: Gross domestic product, the broadest measure of the nation’s output, has risen for two straight quarters. GDP rose by 5.7 percent in the October-December quarter, the fastest pace in six years.
But hiring is still lagging. Many economists say businesses are reluctant to add workers because it’s not clear whether the recovery will continue once government stimulus measures, such as tax credits for home buyers, end.
The debate over health care reform and the scheduled expiration of some Bush administration tax cuts at the end of this year may also cause companies to restrain hiring, many economists said.
[Worth recalling are George W. Bush and Dick Cheney's pathological and nihilistic policies that brought us here; Bush-Cheney in 2002 self consciously reversed the projected elimination of U.S. public debt, in favor of throwing the government into fiscal crisis.]
I am very , very afraid that we have not seen anything yet. Once the elites realize that taxing them greatly is not negotiable all sorts of ultra right wing legislative nonsense will be brought to the House and Senate floor to protect their ill gotten gains. There could be great violence.
I expect the elitist mob to pull out the stops..after all we vermin deserve to be wacked..and they have the means and gov officials to do it..
They should be afraid of the millions without jobs..but a large portion of those layed off still blame the left and the poor and unions and Socialites for this mess. they still swoon at the verbal garbage being spouted at them from the GOP and their propaganda ministry..
I for one do not understand how they can believe the bile spewed into the airways..Maybe its easier..something psychological, to blame the weak..for needing help from the wealthy and to believe that they must protect the rich from this “Socialist” threat…after all most
( lower cast ) Republicans think that they are on the winning track and will be rewarded..and become part of the (upper cast thieves). I hope they are good at holding their breath..there’s not chance they’ll get the invite.
The threat to the elites is much reduced when you count out the faithful from those holding them accountable.
We need to enjoy the long winter as much as we can because conditions are now ripening for a very hot Spring, Summer and Fall.
Conditions auguring the inevitable social unrest run the gamut from:
1. 20 million unemployed and looking, no longer looking, underemployed. Real
unemployment at 23% http://www.shadowstats.com.
2. Feeding America reports that there are more than 37 million people, one in eight
Americans — including 14 million children and nearly 3 million seniors.– going
hungry every day.
3. Due to the slumping economy, only one in three teenagers will have a job this
summer. Anthony Mason reports (http://www.cbsnews.com/video/watch/?id=4233387n)
on the lack of employment for this nation’s youth….4 million 16-21 year olds
looking for summer jobs.
4. 48 million families below the poverty level.
5. 50 million without health insurance.
6. 63% of pubblic grade school teachers buying food for hungry kids
7. 3/5 of all jobs lost during this recession were cuts from small businesses
8. 30% of all small business commercial loans will not be refinanced or rescheduled.
9. Commercial foreclosures will increase. About $814 billion in commercial
mortgages — for apartment houses, office buildings, shopping centers,
warehouses and hotels — are expected to mature this year through 2011, with
$250 billion due this year, according to Foresight Analysis.
That means borrowers will have to raise more equity, which is expensive, or
lenders will have to foreclose or extend loans, hoping values will rise again..
10.Those firms that go under will contribute to unemployment, residential
foreclosures, and burdens endured by the poor.
11.The “Too Big To Fail” syndrome will be repeated and even more money will be
handed out to these fraudsters.
12.Sales of weapons and ammunition have skyrocketed nation wide.According to FBI
statistics, there were 12.7 million background checks on prospective gun buyers
last year, compared with 11.2 million the year before. While checks typically
increase toward the end of the year, they spiked sharply at the end of 2008. The
figures show a 27 percent increase in the last three months of 2008 over 2007.
All of the above contributes, significantly, to the disenchantment of the public with the Administration and Congress over policies on jobs, health care, energy, and war. The sparks of anger now flying will be fanned into flaming rage by radical groups seeking what ever attention they can for their points of view.
I hope I’m wrong. Right now there’s just too much evidence pointing to the high likelihood of social unrest. Even if there were no potential for civil unrest immediate mitigation of the above conditions would be the order of the day. How to get there is not a difficult step where elected officials accept the fact that we are in an emergency. A crisis. Indeed we are facing a situation that poses a clear and present danger to this nations stability.
Financial constraints posed by traditional fiscal and monetary policy must be abandoned for the unconvential but perfectly workable alternative of monetizing the debt of national, state and local governments. Only that debt that is government-to-government or represented by bonds issued for public sector investments should be monetized.
Government should then capitalize, again through monetization, public assets such as transportation, parks, buildings, etc. This would capitalize a state-owned bak which would then have credit creation capability with which to fund infrasturcture programs, health, education and other social saf=ety net programs reduced by cuttbacks during the recession.
These funds could be allocated interest free. http://www.webofdebt.com/articles/fiscal_responsibility.php
Another alternative since inter-bank interest rates are near zero, the President could declare a moratorium on debt service payments on exisiting and new debt for the next three years. The nearly $300 billion saved could should be reallocated to the states for employment and feeding programs.
There is a way out, we need only have leaders who lead us to the light of progress and resist shrinking further into the cave of darkness and destitution.