by Rick McGahey, SCEPA Faculty Fellow
This morning's release of the November employment report shows a slow, steady trend of improvement, although not fast enough to indicate robust economic growth. The unemployment rate tracked down from 7.9 to 7.7 percent, while total job creation in the month was 146,000, very close to the average this year of 151,000 jobs added per month, and almost exactly the average monthly gain in 2011. Meanwhile, employment gains for September and October were revised downward by a total of 50,000 jobs.
It must be repeated that this is an anemic level of job growth; we need more job-creating policies. According to the Atlanta Federal Reserve's jobs calculator, it will take five years to get us to 6 percent unemployment at this level of job growth. The private market is simply not creating jobs fast enough to lift the economy out of stagnation, and government action is needed.
With long-term unemployment (those out of work for more than 27 weeks) hovering at close to 5 million people, it might seem obvious that we need to extend unemployment insurance and create more jobs. But many policy makers and commentators are mired in myths about unemployment, and actually advocate cutting support to those out of work. (For more on unemployment, see the piece by Teresa Ghilarducci and me in this weekend's Washington Post's "Outlook" section, "Five Myths About the Unemployed.")
Faced with economic stagnation, what is the main topic in Washington? The "fiscal cliff," a badly chosen name for the simultaneous expiration at year's end of three distinct policies: (1) the Bush tax cuts; (2) stimulus measures such as the payroll tax holiday and emergency measures to help the unemployed, including extended unemployment insurance; and (3) cuts in discretionary spending put in place as part of the deal in 2011 to raise the debt ceiling.
After campaigning strenuously against the federal deficit and government spending, Republicans and other so-called "deficit hawks" have suddenly become Keynesians—that is, they now fear that raising taxes and cutting government spending will reduce demand and slow the economy, with some fears that the weak economy could again tip into recession. In November, the Congressional Budget Office warned that if all of the elements of the fiscal cliff go into effect, real GDP in 2013 would fall by 0.5 percent, with all of the fall concentrated in the first half of the year.
It seems straightforward that much of the fiscal restraint should be delayed in the short run, and that in fact more economic stimulus measures should be enacted. But instead, we see a narrow debate over raising tax rates for the wealthy and continuing a commitment to longer-term spending reductions. The Center for American Progress, a moderate group headed by Clinton administration veterans, released a long-term debt reduction plan that would raise more revenue than many other proposals, but still would have more spending reductions than revenue increases. Other plans, like the Congressional Progressive Caucus' "Deal for All," which protects Social Security and Medicare and calls for significantly more economic stimulus, are not getting much traction.
Some down payment on the debt is needed, and politically this is a good time to get as far as possible on higher tax rates for the wealthy, along with plugging loopholes in the tax code. But overall, we need faster economic growth and job creation, to get us moving towards full employment, as pointed out in Bob Pollin's excellent book, Back to Full Employment. There is a vigorous policy discussion on the issues Bob raises with ongoing blogging and discussion at http://backtofullemployment.org/.
Many progressive economists, including David Howell, Teresa Ghilarducci, and I, are part of this. Join in the discussion both there and here at SCEPA—the conventional wisdom in Washington is insufficient to restore prosperity for everyone.