Employment – not deficit reduction – should be the first priority for federal government
from Mark Weisbrot
As the much-hyped “fiscal cliff” looms at the end of the year, there is talk about “comprehensive tax reform” as part of a deal to achieve deficit reduction. For Republicans and their allies who want to minimize the taxes paid by rich people, this is one strategy: keep tax rates on rich people at historic lows (or even lower them) while supposedly closing some loopholes. These loopholes may or may not be closed, or the changes may collect more revenue from people who are not in the top 1 or 2 percent, whom they want to protect.
But the whole debate misses the boat in so many ways that it is hard to list them all in this space. First, the “fiscal cliff” is a scam. As a number of economists have noted, nothing much really happens to the economy if budget negotiations go into January. What does happen, however, is that the relative bargaining positions of the president and his Republican opponents shift in favor of President Obama. Before the automatic tax increases (and spending cuts) kick in with the new year, the Republicans can say that President Obama wants to raise taxes. In January, however, President Obama can say, “I want to lower taxes for 98 percent of Americans, and the Republicans are holding your tax cut hostage to win more money for the richest 2 percent.” This change of political terrain would also free up hundreds of House Republicans who have signed the Grover Norquist pledge to not raise taxes, to make a deal.
No wonder everyone who wants to weaken the president’s negotiating position is hyping the “fiscal cliff” as a death plunge for the economy. But in reality, the tax increases and spending cuts would not bite for at least some weeks and possibly even longer after January.
Second, the idea that reducing the federal budget deficit or public debt should be a priority – especially at this time — is just wrong, as a matter of accounting and economics. Any deficit reduction that takes place while the economy is this weak will simply cause more unemployment and reduced income for Americans. And contrary to popular nonsense about America “ending up like Greece,” the U.S. doesn’t even have a public debt problem. Net interest on the federal debt is currently less than 1 percent of our national income, the lowest it has been in more than 60 years. And it’s the interest burden that matters, not the big numbers like $16 trillion that are thrown around in scare stories.
The real priority of both the lame duck session and the new Congress should be creating jobs. We have more than 22 million people who are unemployed or underemployed, and the percentage of unemployed that are long-term (out of work 27 weeks or longer) has been at record levels. Anyone who has suffered this kind of unemployment and the stress associated with it knows how harmful it is. There is also considerable research showing that unemployment lowers life expectancies, increases physical and mental health problems, divorce rates, lowers the educational achievement of the children of the unemployed, and has other terrible social costs. Even college graduates are having trouble finding work in this weak labor market.
There is no shortage of work to be done: climate change is a reality, and the country needs to invest in its energy infrastructure in order to reduce fossil fuel consumption. This includes public transportation, the electrical grid, renewable energy and education. The government can borrow at almost no cost and can – as the Federal Reserve has done to the tune of more than $2 trillion since 2008 — even create money, with no ill effects in this weak economy. All that is lacking is the political leadership.
An obvious conclusion — more jobs and stop worring about what is only an accouting problem!
But, you seem to ignore that this threat of a fiscal cliff and if we actually go over it will cause entrepreneurs today to cut back on production and therefore not increase employment and perhaps even reduce jobs! so thepolitics of the fiscal cliff really becom a threat of a job destruction engine.
The problem is that economists that the media continue to quote apparently do not know the difference between accounting problems and real resource problems.
For example insolvency is merely an accounting problem.. If one did not have to mark to market, then the Toxic assets known as mortgage backed derivatives could have been marked,– as all illiquid mortgage assets held by savings and loan associations , for example are at their outstannding debt values –as they should since in essence thse derivatives are a conglomerte of illiquid financial assets. As long as there is no liquidity problem, i.e., contractual cash outflows can be met by cash inflows and/or liquidating liquid assetsd.
Unfunded future medicare and medicaid liabilities is an and not a real resource problem as long as in the future there are enough medical resources to adequately treat all that are ill. at any future date.
And if there will not be enough medical resources to treat all that are ill in the future what then?? Shall these overly scarce future medical resources be rationed by income and wealth of the ill, leaving the poor to die of illnesses that available resources could of kept them healthy if they had more dollars??
Or should these potentil future medical resources be rationed by queue with medical authorities judging who should get to the head of the queue by evaluating the person’s level of sickness and chances medically of being able to be cured??? [Or is that socialized medicine?]
Or should the federal government make the invsetment today into providing more medical resources for the future??
These are the economic questions that should be faced!! Not the accounting question of funding or unfunding projected future lmonetary liabilities.
Paul Davidson
Paul, public and private “health care” spending is already 17-18% of GDP and 28% of private GDP (an increasingly onerous tax on labor and employers that is unsustainable), growing at twice the rate of private GDP for 11-12 years, and 50-60% faster since the ’80s. At the differential rates of growth of “health care” and private GDP, “health care” spending will constituted one-third of private GDP by the early ’20s, half of private GDP by the mid- to late ’30s, and half 100% of private GDP after mid-century.
Total local, state, and federal gov’t spending, including Social Security and Medicare transfers, is now in excess of an equivalent of 50% of private GDP and an equivalent of 100% of private wages and salaries. Total gov’t/private GDP exceeds the level of WW II, and has been at or above the level of WW II since the ’70s.
Moreover, total stock market capitalization is 160% of private GDP (historical average of 50% and 30-35% at secular bear market lows), with 40-85% of US financial wealth held by the top 1-10% of US households. US savings is held disproportionately in the form of overvalued corporate equities, primarily of the Fortune 25-300 firms (with average revenue per employee of $425,000), resulting in falling money velocity, contracting private real GDP per capita, and large deficits/GDP. Boomer demographics and debt/GDP are exacerbating the effects “health care” spending and asset hoarding, as was the case (demographics and debt effects, that is) in the 1880s-90s, 1930s-40s, and in Japan since the ’90s.
Regressive taxation of labor and of production is also combining with financial asset hoarding seeking 7-10% annualized returns to discourage private investment at labor returns of 2-4%.
Then add the empirical historical fact that US real GDP per capita cannot grow with the constant-dollar price of oil above $40, and we are facing demographic, fiscal, and net energy conditions that preclude growth of real GDP per capita hereafter. We cannot have profitable Bakken and tar sands extraction at $80-$100 AND growth or real GDP per capita.
No economist, politician, CEO, Wall St. bankster, or financial media influential can tell us for fear of the implications, as well as revealing that the so-called “experts” can’t tell us the truth because they don’t have “solutions” for conditions that coalesce only once in 50-70 years, i.e., once in a lifetime.
Um – no. What needs to be retored is demand, not jobs. The jobs are gone and they are not coming back. See “Jobs? Forget jobs. They are gone and they are not coming back” at http://whatsnotso.blogs.com .