The recovery has stalled. Only 54,000 jobs were created in May. That’s hardly enough to make a dent in the nation’s sky-high unemployment.
Even those who have jobs are sliding back toward recession. The average hourly earnings of production and non-supervisory employees ― who make up 80 percent of non-government workers ― are now lower than they were in the depths of the recession, adjusted for inflation.
Housing prices are sliding along with everything else. They’re now 33 percent below their 2006 peak. Homes are the largest single asset of the American middle class, so as housing prices drop, many Americans feel even poorer.
All of this is contributing to a general gloominess. Not surprisingly, consumer confidence is also down.
The problem isn’t on the supply side of the ledger. Corporate profits are still healthy. Big companies continue to sit on a cash hoard. Large and middle-sized companies can easily borrow more, at low rates.
The problem is on the demand side. American consumers, who constitute 70 percent of the total economy, can’t and won’t buy enough to get it moving. As consumers hold back, companies remain reluctant to hire new workers or raise the wages of current ones, feeding the vicious cycle.
The timing couldn’t be worse. Global markets are under increasing strain. Europe is in a debt crisis, Japan is still struggling with tragedy, and China is trying to stem inflation.
Here at home, the federal stimulus has about run its course. The Federal Reserve is about to end its $600 billion of purchases of Treasury bonds, designed to bring down long-term interest rates and make it easier for homeowners to refinance. Worse yet, state governments ― starved for revenue and constitutionally barred from running deficits ― continue to cut programs. Local governments are now in worse shape, laying off platoons of teachers and firefighters.
Under normal circumstances, this would be the time for the federal government to take bold action to ward off a double dip.
For example, it could put more cash in peoples’ pockets while giving employers an extra incentive to hire by exempting the first $20,000 of earnings from payroll taxes for a year or two. It could lend money to state and local governments. It could launch a new WPA (modeled after its antecedent during the Great Depression) to put the long-term unemployed to work on public projects.
It could amend the bankruptcy law to allow people to include their prime residences in personal bankruptcy, thereby giving homeowners more leverage to get mortgage lenders to mitigate the terms of their loans. It could enlarge and expand the earned income tax credit so that the bottom 60 percent got a wage subsidy instead of a tax bill.
But our nation’s capital is paralyzed. Since taking over the House of Representatives in January, Republicans have focused on cutting government spending and paring back regulations. Their colleagues in the Senate, whose leader has proclaimed his major goal to unseat President Obama, are almost as single-minded. Cynics might suspect Republicans of quietly hoping the economy stays rotten through Election Day.
Democrats, meanwhile, would rather not dwell on the slowdown because they don’t want to spook the bond market or add to the prevailing gloom. (Jimmy Carter’s ill-fated comment about the nation’s “malaise” during the stagflation of the late 1970s has served as a permanent admonition for presidents to stay upbeat.)
Democrats are staking their electoral hopes on continuing disarray among Republican presidential aspirants, as well as the Republicans’ suicidal plan to turn Medicare, the popular health insurance system for seniors, into vouchers that would funnel money to private, for-profit insurance companies.
The result is as if Washington were on another planet from the rest of the country (many Americans would argue this is hardly a new phenomenon). The noisiest battle in the nation’s capital is over raising the statutory debt limit ― a game of chicken that has nothing whatsoever to do with getting the economy out of the mess it’s now in.
Washington’s paralysis in the face of a stalled recovery is bad news ― not just for average Americans but for the world. Ironically, it also worsens America’s future budget crisis because it postpones the day when the debt begins to shrink as a proportion of the GDP. Yet as the 2012 election season looms, the prospects for sensible policy seem to decrease by the day.
By Robert Reich
Robert Reich, former U.S. secretary of labor, is professor of public policy at the University of California at Berkeley and the author of “Aftershock: The Next Economy and America’s Future.” He blogs at www.robertreich.org. ― Ed.
(Tribune Media Services)