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March 2011, Week 1

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Sun, 6 Mar 2011 19:15:14 -0500
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Changing The Terms Of Economic Debate
As long as we let ourselves be boxed in by a 
rightwing agenda that leaves us searching for 
least-worst options, we're losing
Dean Baker
The Guardian
28 February 2011
http://www.guardian.co.uk/commentisfree/cifamerica/2011/feb/28/useconomy-usemployment

There is a new economists' sign-on letter being
circulated that warns bad things will happen if there
are big cuts to the public investment portion of the
federal budget, as Republicans in Congress are now
advocating. The argument in the letter is correct, but
it is nonetheless painful to see this sort of thing
being circulated right now.

The politicians in Washington may have missed it, but we
are still in the middle of the worst economic downturn
since the Great Depression. The unemployment rate is
still 9.0% and virtually no forecaster, including those
in the administration, expects it to return to normal
levels any time soon. In addition to the unemployed, we
have more than 8 million people underemployed, and
millions more who have given up looking for work
altogether.

In such times, we might expect that there would be
discussion of a big new stimulus programme. After all,
we do know how to generate growth and create jobs. As a
large and growing body of research shows (pdf), we just
have to spend money. This means that tens of millions of
people are suffering as a result of unemployment or
underemployment simply as a result of bad economic
policy.

The politicians who could, in principle, push through
more stimulus have been intimidated into silence by the
business lobbies and the media which have decided to
make concerns about the deficit the top and only
economic priority. In this context, it would have been
reasonable to expect that a letter drafted by prominent
liberal economists (the lead signers include Alan
Blinder and Laura Tyson, two of the top economists from
the Clinton administration) would centre on the need to
boost demand to create jobs. Economists, who don't have
to run for office can say such things, even when
politicians can't.

But there is no mention of stimulus, just a plea not to
cut public investment. This plea could even be taken as
an implicit endorsement of cuts to other areas of
spending like Medicare, Medicaid and social security.

In fairness to the authors of the letter, the state of
politics in Washington is quite bleak right now from a
progressive standpoint. The Republicans won a huge
victory last fall, with the conservative wing of the
party on the ascendancy. They seem virtually certain to
retake the Senate in 2012. Arguably, the best that can
be hoped for is to shelter a few selected areas from
spending cuts.

While that may be true at the moment, it is hard to see
this path as anything other than a slower road to
disaster. After all, no one believes that the economy is
going to turn around based on the sort of budget that is
likely to come from a compromise with the Republicans.
And President Obama is virtually certain to be held
accountable for the state of the economy in 2012.
Furthermore, even if he does manage to get re-elected,
he will still be dealing with the same sort of
congressional opposition he faces today. And, of course,
no one in their right mind can think that the current
economic situation is acceptable.

At some point, we have to talk about changing the terms
of the debate. This is where our two honcho Democratic
economists need to be taken to the woodshed. They could
be trying to argue the case that the economy needs
additional stimulus to get back to normal rates of
unemployment. The Republicans may block this path, but
at least, then, the public might understand that people
are unemployed or underemployed because of a political
decision, not an act of God.

If they think increased stimulus is an impossible lift
at this point, why not argue the case for work-sharing?
We can encourage employers to shorten hours instead of
laying people off. If we can reduce the rate of layoffs
by just 10%, this would translate into almost 2.5m
additional jobs over the course of a year.

In principle, this work-sharing doesn't even have to
cost any money. It's just substituting payments for
short-time work for unemployment benefits. Work-sharing
is the reason that Germany's unemployment rate has
fallen in this downturn, even though it has seen less
GDP growth than the United States.

Pushing for either more stimulus or work-sharing would
at least set out a positive agenda, as opposed to
splitting the difference on a really bad path. Of
course, if our leading Democratic economists had been a
little more farsighted, we never would have been in this
mess in the first place.

They would have been talking about the housing bubble
back in 2002-2004, when it could have been reined in
without wrecking the economy. Better yet, they could
have been talking about the stock bubble back in the
Clinton years before that set the US economy on a path
of bubble-driven growth.

It would be good if Republican plans to shut down the
government and/or gut large areas of public investment
can be thwarted. But serious progressives have to move
beyond a situation where we are choosing between bad
choices and worse ones. The folks setting the economic
policy agenda for the Democrats are not going to get us
there.

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