September 26, 2022

The “Debt Ceiling” versus “Jobs Creation” Debate: Not the Time for a Mistake

Posted on 11. Jun, 2011 by Administrator in Economy

A U.S. Senator friend of mine suggested that the ongoing ‘Debt Ceiling’ versus ‘Jobs Creation’ battle underway in Congress – that began in spades within hours of the polls closing last November – can be best understood if you envision Mitch McConnell, John Boehner and Paul Ryan sitting on a settee – think of the opening scene from the movie “Animal House” – and President Obama sitting in a chair opposite.  McConnell/Boehner/Ryan are the nation’s “Budget Cutters” and the President is the “Jobs Creator”.  The ‘Rs’ invite the President to slide his chair forward in their direction, and in a spirit of reconciliation he does so – again and again and again….  Of course, throughout this ‘negotiation’ the Republicans haven’t moved an inch and only a de minimis number of jobs have been created.

This one-way negotiation has to cease – it should never have started – yet each side’s core objective is imperative and appropriate. It’s indisputable on the one hand that as Gretchen Morgenson has written, the “U.S. Has Binged [and] Soon It’ll Be Time to Pay the Tab” (NY Times, 5-28-11).  Ms. Morgenson writes compellingly of a new report by the Peterson Institute for International Economics which states plainly that “government debt will grow to dangerous and unsustainable levels in most advanced and many emerging economies over the next 25 years – if there are no changes in current tax rates or government benefit programs in retirement and health care.”

Without a long-term plan to reduce fiscal deficits in the future, our nation’s “net federal deficit” (i.e., the government’s financial liabilities minus its financial assets), which is now at 65% of gross domestic product, is forecasted, under a best case outlook, to rise to 155% by 2035 and, under a more pessimistic view, to 302%.  This is despite the fact that “debt ratios of around 200% of GDP are at the extreme limit of what advanced economies can experience without becoming destabilized.”

And what would this “destabilization” mean for the United States?  According to the authors, it would mean the combination of “a drift into ever-higher inflation and interest rates, ever-lower growth or deeper recession, and eventually hyperinflation along with rapid currency depreciation.”

So, address the debt crisis we must.

However, given that we are today so obviously mired in a jobless-recovery with a “Jobs Gap” at the end of May of 21.3 million jobs before we are back to full employment in real terms and given that the two most impactful immediate drivers of the U.S. economy – the housing market and oil prices – offer little in the way of near-term recovery, now is not the time to adopt blanket fiscal austerity that throws babies out with the bathwater.  The unprecedented massive overhang of foreclosures and vacancies has driven home values back to 2002 levels, and now that this latest massive Wall Street-made bubble has burst, any real recovery in employment will be obstructed for years to come.  In turn, oil prices, which are fully 40% higher than a year ago and putting untold pressure on auto-dependent workers, are unlikely to materially decline any time soon. We have no choice but to act, and we’re running out of time.  Our political leaders must figure out how to create jobs and cut our deficit simultaneously.

Even Christina Romer, who headed President Obama’s Council of Economic Advisors until late last year and whose finger prints, along with those of Larry Summers and Timothy Geithner, are all over the grossly undersized and misdirected early 2009 stimulus plan, said recently in a speech that “no part of the government [today] is addressing unemployment with sufficient urgency or hope” (NY Times, 6-02-11).  Since it was Ms. Romer and the President who said that with the stimulus plan in place the official unemployment rate would never get above 8%, it is more than sobering today, when real unemployment is a staggering 18.2%, to hear her excoriate her own plan.

But as we can’t abandon job creation, we also can’t allow attacking the deficit to ever become a mauling of the middle class and a further enrichment of the extremely wealthy, which is what many of the recommendations of the Republicans in Congress and some of Mr. Obama’s own Deficit Commission would trigger. To find the proper balance between “deficit cutters” and “job creators”, the White House and Congress first need to abandon the three false economic premises that now dominate the thinking of too many in Washington.  These unsupportable premises are that:

  • Near-term large-scale job creation and long-term deficit cutting are somehow mutually exclusive.  In fact, jobs-based stimulus, because of the large multiplier effect of high-quality job creation, is a much more responsible and effective way to reduce the deficit than is slashing spending for slashing’s sake.
  • The income inequality that is increasingly defining our economy and society – now the most extreme ever  – can continue without destroying our long-term economic growth and the vibrancy of our society.  In fact, even though a vibrant American middle class growing from the bottom up has always been the very best thing for America, we are now living in a nation where the top 1% of American earners make about 25% of the nation’s pretax income and enjoy much lower tax rates than ever before.
  • The very small-government agenda of the “cutters” is somehow compatible with our being the world’s largest economy, our global defense responsibilities, and our large population and its mature demographics.  In fact, this agenda is nothing more than a wolf in sheep’s clothing, with its inevitable result being even more wealth transfer to the already extremely wealthy, by eviscerating Social Security and Medicare and from sharp reductions in the top marginal individual tax rate and the corporate tax rate.

Once everyone is back on a level intellectual playing field, where honest premises trump false ones, and the commonly agreed objective of negotiators on both sides is to responsibly cut the budget in exchange for raising the debt ceiling, meaningful job creation initiatives, and equitable tax reform, it’s important for the Obama White House, the ‘Biden Group’ and Democrats on Capitol Hill to stand firm for a deal that meets the demands of the middle class, who, by a margin of two-to-one, favor aggressive jobs initiatives over a long-term deficit reduction program.

What is concluded in this deficit/jobs negotiation and in the intimately related negotiations over the FY 2012 budget will set the course of the 2012 elections.  If the Obama administration’s negotiators and their allies on Capitol Hill conclude a deal consistent with the goals Candidate Obama laid out in ‘08, ideally there should be four winners and at least three losers.  However, if these ideal winners and losers are somehow juxtaposed, then the fabric of our society will be further torn asunder and our leadership position in the global economy further eroded.

The WINNERS of the upcoming deficit-versus-jobs debate and resultant deal must be:

  • The unemployed, plagued as they are by a real unemployment rate of 18.2% – which is exactly twice the “official” rate reported by the BLS of 9.1% – and by the damage from an ever declining manufacturing sector.
  • Middle class workers, who, on average, have experienced in real terms stagnant wages for the past twenty years.
  • Retired workers and the sick and elderly, whose Medicare, Medicaid and Social Security are now under constant attack by the Republicans in Congress.
  • Deficit hawks, who are entitled to see inefficiencies in government spending eliminated and unwarranted tax breaks for big oil companies, tax breaks for millionaires, and carried interest taxation of money managers done away with.

The LOSERS should in turn be:

  • Any individual, multinational corporation and oil company that’s been sucking off the teat of unfair, inequitable and non-progressive tax code provisions.
  • The so-called “Ryan Budget”, which more cruelly than any House-passed federal budget in memory would, with its focus on slashing social programs across the board and the social safety net of the country writ large, gut every progressive principle upon which our nation was founded.  The Ryan Budget’s devotion to preserving the discredited “trickle down” philosophy of the Reagan administration and every Republican president and Congress since is simply obscene.
  • The six recommendations of President Obama’s own “Deficit Commission”, which, if ever embraced, would constitute their own mauling of the middle class.  Ranging from raising the Social Security retirement age to 69 (when life expectancy for the bottom half of the income distribution hasn’t budged for 30 years) to eliminating deductions of health benefits and interest on certain home mortgages to blindly cutting the federal workforce by 10% by 2015 (without carefully taking into account whether important functions would be disrupted), these recommendations, without once talking about cutting the myriad tax and economic advantages now going to the wealthiest individuals and multinational corporations, are the height of irresponsibility, and little more than the “Ryan Budget” wrapped up in different bunting.

The esteemed Paul Krugman wrote last week (NY Times, 5-29-11) that: “Inventing reasons not to put the unemployed back to work is neither wise nor responsible – it is, instead, a grotesque abdication of responsibility.  And those of us who know better should be doing all we can to break that vicious circle.”

With an unprecedented Jobs Gap at the end of May of 21.3 million jobs, and with responsible solutions in hand for both the budget cutters and the job creators if we would only embrace them, Mr. Krugman couldn’t be more right.

Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations.  Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband.  He also serves on the Board of the Huffington Post Investigative Fund.


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