Let’s get fiscal

More stimulus, more government jobs programs, more debt relief – Linked on our blogs with Mike Whitney – USA (the American writer).

Published on Online Journal, by Mike Whiteney, November 19, 2009.

… There’s no reason why a sharp-witted politico like Barack Obama can’t survey the wreckage around him and draw the same conclusions as FDR …

… Uh, now who exactly is telling Obama that trimming the deficits (which involves raising taxes or cutting spending) in the middle of a severe economic downturn is a good idea? Summers, perhaps?

This excerpt from Politico just highlights the yawning chasm between blabber and policy. If Obama decides to cut the deficits and jettison the jobs programs, the economy will slide right back into recession. Is that what he wants, or is he just an unwitting victim of Summer’s crummy advice? 

Summers knows that the 3.5 percent surge in GDP in the 3rd quarter was entirely the result of Obama’s fiscal stimulus. He also knows that government jobs programs will increase demand, boost consumer confidence, add to state revenues, and spur growth. So why is he caving in to the deficit hawks and the dollar demagogues instead of pushing Obama to rally the country to use the nation’s vast resources to put its people back to work?

The Fed can’t do it. In fact, the Fed already has its back against the wall. Its balance sheet has ballooned to more than $2 trillion in the last year alone. It’s getting no traction from its zero percent interest rates, and its $1.75 trillion quantitative easing program is set to end by the end of the 1st quarter 2010. Fed chair Ben Bernanke has stabilized the financial markets, but the liquidity is still not getting to the people who need it most because the credit system is still gunked up with toxic paper. That’s taken the “trickle” out of trickle-down, which is why the economy needs a lift, a direct infusion of stimulus to the jugular; to patch household balance sheets and perk-up consumer spending. The stimulus should be part of an aggressive reform agenda aimed at job creation. Otherwise, things will only get worse.

How bad will it get? Here’s a clip from Nouriel Roubini’s RGE Monitor, “The Worst is Yet to Come”:

“Think the worst is over? Wrong. Conditions in the US labor markets are awful and worsening…
“The long-term picture for workers and families is even worse than current job loss numbers alone would suggest. Now as a way of sharing the pain, many firms are telling their workers to cut hours, take furloughs and accept lower wages. Specifically, that fall in hours worked is equivalent to another 3 million full time jobs lost on top of the 7.5 million jobs formally lost.

“This is very bad news but we must face facts. Many of the lost jobs are gone forever, including construction jobs, finance jobs and manufacturing jobs. Recent studies suggest that a quarter of U.S. jobs are fully out-sourceable over time to other countries …

So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

There’s really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation. The Worst is Yet to Come, Nouriel Roubini’s RGE Monitor ).

This isn’t the time for hemming-and-hawing. Obama should be using his clout to launch a trillion dollar “Get America Back to Work” campaign with all the public relations rigmarole to go along with it. 17.5 percent “real” unemployment is only part of the story, too. There’s also 300,000-plus foreclosures every month, record personal bankruptcies, plummeting state revenues, and countless maxed out homeless shelters and food banks. We’re in the throes of a low-grade depression that requires emergency mobilization aimed at expanding the public workforce and increasing wage-and-benefits packages to spark greater demand. The states should be given open-ended funding to cover losses in annual tax revenue as long as they agree to an across-the-board firing freeze for all state and local employees. Government resources should be provided in block grants to states for green technology, infrastructure projects, foreclosure relief, low income housing, and public health care facilities. Whatever it takes to rev up the industrial flywheel that keeps the economy purring; Do it!

The Fed’s monetary remedies have flopped. It’s onto Plan B, which means bold New Deal-type jobs programs; direct public-service employment which eliminates the waste of tax credits for private sector hiring and misdirected stimulus which disappears down a black hole. Put money back in the hands of the people who will spend it (workers) and build a stronger economy where everyone benefits. The system needs to be rejiggered; everyone knows it. The essential balance between supply and demand has been upset and can’t be restored without a larger public workforce. Much larger.

Larger public workforce. Larger bureaucracy. Big government. (full text).

(Mike Whitney lives in Washington state. He can be reached by e-mail).

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