The Common Good
December 2012

The Road to Recovery

by Heather Boushey | December 2012

We know how policymakers can fight unemployment. They're just not doing it.

ONE OF THE best things about growing up in the 1970s was Schoolhouse Rock! on Saturday morning TV. The day my high school history class began to study the preamble of the U.S. Constitution, we all broke into song: “We the People ... in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare ...”

In the ’70s, Americans still believed those words; the general welfare was important to policymakers across the political spectrum. Today, we have a political discourse where the Republican presidential contender disparages the elderly and the unemployed for collecting benefits for which they’d paid into an insurance fund.

And now policymakers are allowing the looming “fiscal cliff” to threaten the U.S. economic recovery from the recent recession. At the end of this year (or a few months later if Congress kicks the can down the road), Congress and the administration must work out a compromise on spending cuts and revenue increases, or the economy will face deep, mandatory federal spending cuts and across-the-board tax hikes. Such deep spending cuts would devastate many programs that aid those most in need. And, in addition to hurting families, spending cuts at this point in the recovery threaten to derail economic growth and job creation.

In order to make sure fewer people need unemployment insurance benefits, Congress needs to run deficits for the next couple years. Economists are in general agreement that what the economy needs now is more fiscal expansion—that is, an agenda that will make investments that could create jobs and pave the way for long-term economic growth. Federal Reserve Chair Ben Bernanke pointed this out in a recent speech: “Fiscal policy, at both the federal and state and local levels, has become an important headwind for the pace of economic growth.”

Ninety-two percent of Americans who want a job (and who haven’t dropped out of the labor market in despair) have one. But more than 12.5 million Americans languish in unemployment. The share of the U.S. working-age population with a job was 58.3 percent in August, nearly 4 percentage points below where it had been in August 2008.

That’s why in September the Federal Reserve did what many have been asking it to do for some time now: It announced that its top priority is to lower unemployment, and that it will continue to use the tools at its disposal to push the economy toward growth. Given the response, one would have thought that the Fed had announced it was beating up puppies. The Fed was accused of politicking because it was trying to reduce the unemployment rate, rather than letting people suffer unnecessarily. In the words of Rep. Raúl Labrador, a Republican from Idaho: “It really is interesting that it is happening right now before an election. It is going to sow some growth in the economy, and the Obama administration is going to claim credit.”

The Fed’s policy actions, while important, are small potatoes compared to the effect Congress could have on the economy if it were willing to stop focusing on the failed ideology of “austerity” and move out of gridlock. By making needed investments now, following in the footsteps of the stimulus efforts begun in 2009 and 2010, Congress could use its power to promote private-sector job creation and push the economy onto a sustainable-growth path toward full employment.

Members of Congress could and should refocus their energy on an agenda that would create, not destroy, jobs. The government could invest, right now, in our roads, bridges, schools, and energy grid. It could stem the tide of job losses among teachers and public safety officers, putting them back to work educating the next generation and keeping our communities safe. Our policymakers could go back to basics—and remember that their job is to protect the general welfare.
    
Heather Boushey is senior economist at the Center for American Progress in Washington, D.C.

Image: Two choices, DeiMosz / Shutterstock.com

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