Making Sense On Jobs And The Deficit

Isaiah J. Poole

Editor’s Note: This is the last in a series of “Making Sense” fact sheets on key economic issues to help you win the debate on the core issues facing middle-class families. Each fact sheet contains information, talking points and resources you can use to make the case for progressive policies. Earlier: Curbing Wall Street, Social Security, clean energy, manufacturing and health care.

The Challenge

Click for PDF versionThe faltering economic recovery has left some 25 million people either unemployed or underemployed. But the conservative spin machine is pointing the blame in the wrong direction—with disastrous results for ordinary Americans and the future of the American economy. The problem is not that government ran up too much debt in a failed effort to stimulate the economy; it is that government did too little, hobbled by the same conservatives who now seek to cash in politically on the damage they have wrought. Americans need straight talk about what is needed to get the economy going and put people back to work.

The Argument

There are only four sources of demand in the economy—consumers, business, exports and government. Right now companies are sitting on cash, unwilling to hire with no customers in sight. Families are still reeling from the loss of trillions in retirement savings and value in their homes, while most Americans lost ground over the last decade. Rising trade deficits sap job growth. With the first three sources of demand nearly comatose, government has no choice but to act.

The economic recovery act President Obama signed into law in 2009 succeeded in saving or creating 3.5 million jobs, according to the nonpartisan Congressional Budget Office. Without it, today’s unemployment rate would have been closer to 12 percent. But that law, weakened by political compromise, was not large enough and bold enough to do the job. Almost $300 billion of the $780 billion act was in tax cuts, largely ineffective for affluent Americans. The expenditures – on everything from extending food stamps, investing in new energy, rebuilding schools – were negated by cuts at the state and local levels that reduced demand. The actual net stimulus was far too small.

Americans are said to be worried about the large deficit we are running – but most of that deficit comes from the economic collapse itself, which increased government payments for unemployment insurance and decreased tax revenues. In fact, the current moment is exactly the moment when we should be investing to rebuild America. Interest rates are near record lows. The construction industry has collapsed, from the biggest builders of sophisticated projects to small homebuilders and renovators. We have a massive public investment deficit—in roads, sewers, schools, trains, renewable energy, and other basic parts of our communities. To be competitive, we need to rebuild the infrastructure that is vital to our economy. This will create jobs, help business compete, improve our communities and generate revenue that can help pay down the budget deficit. And this is the best opportunity we’ve had to do so in the last 50 years.

The Obstacles

Conservative politicians, having spread the fiction that the recovery was undercut by profligate stimulus spending, now propose a brand of austerity economics that is destined to make things even worse. A plan backed by leading congressional Republicans calls for cutting $100 billion out of domestic discretionary spending next year, which would cut these programs by more than 20 percent, according to Bloomberg News. State and local government layoffs are already adding to unemployment. Cuts at the federal level will only increase unemployment and slow growth, which in turn will reduce government revenues and increase costs in unemployment insurance, food stamps and other benefits. Austerity in the midst of a stagnant economy is likely to increase deficits, not decrease them.

At the same time, these same conservative politicians are insisting on extending the Bush tax cuts for people earning more than $250,000 a year. That will add $700 billion to the deficit over 10 years without offering any consequential stimulus to the economy.

Progressive Solution

In the depths of this crisis, we must have the vision and confidence to build a new foundation for the economy—investing in education, 21st century infrastructure, research and development, making the transition to new energy, grabbing a lead role in the new green industrial revolution—and grow our way out of the hole we are in. Those who are calling for cutting spending are pulling the plug not only on jobs now, but on any hope for recovery in the future.

Fast Facts

  • Based on current projections, interest payments on the nation’s debt burden will in 2019 rise only to the level they were in 1992, according to economists Paul Krugman and Dean Baker.
  • A budget-cutting plan by House Republican John Boehner would lead to the loss of 1 million jobs, would cut key domestic spending programs by almost 23 percent, and would have a negligible impact on the deficit, says the Economic Policy Institute.
  • Each dollar government spends to improve our transportation networks, our water and sewer systems and our other public facilities yields $1.53 in economic benefit. Making the Bush tax cuts permanent yields just 29 cents of economic benefit for each dollar forfeited, according to Mark Zandi, adviser to Republican John McCain’s presidential campaign. .
  • Spending $75 billion on direct job creation would put more than 675,000 people to work on jobs that need to be done in our communities. That would stimulate enough economic demand to create an additional 150,000 private sector jobs, and the government would get more than half its spending back in increased tax revenue.

Public Pulse

  • 62% of likely voters in a Democracy Corps/Campaign for America’s Future poll would support the federal government providing more funding to the states to prevent further service cuts and layoffs.
  • Strong majorities support progressive solutions for addressing the federal deficit: 63% back lifting the Social Security cap on incomes higher than $107,000 a year; 64% would favor eliminating tax breaks for corporations that outsource jobs; 62% would support a tax on excessive Wall Street bank profits. (Democracy Corps/Campaign for America’s Future poll)
  • 56% of respondents in a September CBS News/New York Times poll said that President Obama did not expand government too much to address the economic slump.
  • 57% of respondents in an October Washington Post/Kaiser Family Foundation poll said they want their member of Congress to fight for more government spending in their congressional district, in order to create jobs; only 37% would want their member of Congress to cut spending even if it meant fewer jobs in their district.
  • The top priorities for participants in a 2010 Allstate/National Journal Heartland Monitor poll were “strengthening public services like infrastructure, education and Social Security” (21%) and “reducing unemployment to the lowest possible level” (20%). Only 15% said “reducing the size of government.”


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