As Wall Street Cheers Gridlock, We Get Stuck
October 27, 2010 - 12:45pm ET
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Wall Street, conventional wisdom has it, likes legislative gridlock. Stock prices tend to go up when Election Day results in the two major parties splitting power. As a USA Today story recently noted, “In the words of many Wall Street analysts and economists: Gridlock is good.”
Wall Street, be careful what you wish for.
At a forum Tuesday presented by the New America Foundation, several scholars and economists counted the cost of more than three decades of conservative-dominated economic policy and the federal government’s severely compromised response to the Great Recession. One thing became clear very quickly: The last thing you should want when an economy is gasping for air is gridlock that keeps emergency vehicles from responding.
That’s what’s already been happening, thanks to House Minority Leader John “Hell No You Can’t” Boehner and Senate Obstruction Leader Mitch McConnell. They led the effort that prevented the 2009 economic recovery bill from being sufficient to the need, and then stood in the way of follow-up attempts to aid state and local governments, extend unemployment benefits and move overdue transportation infrastructure funding through Congress.
Heidi Shierholz, economist at the Economic Policy Institute, said a continuation of this kind of policy paralysis—assured if the House switches from Democratic to Republican control after the November 2 elections—would mean a record level of sustained and elevated unemployment for at least the next three years.
“We have unemployment forecast to be 9.9 percent next year, which would actually be higher than the highest annual rate of the early 1980s recession,” she said. “Then, in 2012, it will be higher than the highest annual rate of the early 1990s recession. In 2013, the unemployment rate will be forecast to be over 6 percent, six years after the start of the recession. …
“If we keep going on as we have, we are going to have recessionary unemployment levels through 2013, and elevated beyond that. So that paralysis will have real effects on the ground.”
As it stands now, Shierholz said, the economy is 11 million jobs short of what’s needed to undo the damage of the Great Recession. By 2016, the economy will have to create 19 million new jobs to bring the nation to full employment.
Getting the economy on track to meet that need will require dramatic policy changes that are actively opposed by Republicans and are beyond what many Democrats are willing to embrace in the current political environment. “When you've had a meltdown you can't just throw a switch to get things started again,” said economist James Galbraith at the forum, and you certainly can’t expect the conservative policy prescriptions that have failed to work for 30 years to work in today’s even more challenging economic environment.
Galbraith and Sherle Schwenninger, director of the New America Foundation's Economic Growth Program, said the elements of a response to today’s jobs emergency would have to include, among other things:
- A restructuring of the financial services industry, building on the reforms progressives won this year, so that it is more accountable to the public interest, combined with tools such as an infrastructure bank that uses federal dollars to leverage private investment in rebuilding the nation’s infrastructure.
- Stabilization of the housing industry, including write-downs of principals on underwater mortgages and a curbing of the foreclosure fraud machine that, having sold mortgages that should never have been written, then sought to put people out of their homes through what amount to robo-foreclosures that flout the law and due process.
- Allowing the federal government to take its rightful role in leading the economic recovery, recognizing that it alone, not states and localities, has the capacity and flexibility to take countercyclical actions to stimulate the economy in the absence of private sector demand. That role could include a return to Nixon-era “revenue sharing” with states, federal assumption of state Medicaid programs, and direct job-creation.
- Making it easier, not harder, for older people to leave the labor market if they choose. Pushing back the Social Security retirement age to 69 or 70, as being encouraged by politicians in both parties, will mean less room for new entrants to the labor market. We should be working on ways to strengthen Social Security benefits and make Medicare available at least to people 55 and older (a proposal that was blocked by conservatives from the health care reform bill).
“The private sector jobs machine is broken and has been for years,” Galbraith said. The conservative solution, cheered on by Wall Street, is to keep emergency vehicles obstructed so they cannot get to the machine to fix it. Keeping this up will only keep working-class families sliding downward, and at some point Wall Street will find that their dependence on profits without broad prosperity is unsustainable.
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