“I am concerned about the fact that the recovery that we’re on is not producing jobs as fast as I want it to happen,” President Obama said last week.
Does this mean we’re about to see a package of bold ideas from the White House for spurring growth of jobs and wages? Sadly, it doesn’t seem so.
The president says he’s interested in working with Republicans to extend some of the measures that were part of last year’s tax-cut package “to make sure that we get this recovery up and running in a robust way.”
Accordingly, the White House is mulling a temporary cut in the payroll taxes that businesses pay on wages. White House advisors figure this may appeal to Republican lawmakers who have been discussing the same idea.
Other ideas under consideration at the White House include a corporate tax cut, accompanied by the closing of some corporate tax loopholes.
Can we get real for a moment? Businesses don’t need more financial incentives. They’re already sitting on a vast cash hoard of $1.9 trillion. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed.
In consequence, businesses are already spending as much as they can justify economically. Almost two-thirds of the measly growth in the economy so far this year has come from businesses rebuilding their inventories. But without more consumer spending, businesses won’t spend more. A robust economy can’t be built on inventory replacements.
The problem isn’t on the supply side. It’s on the demand side. Businesses are reluctant to spend more and create more jobs because there aren’t enough consumers out there able and willing to buy what businesses have to sell.
The reason is consumers’ paychecks are dropping, adjusted for inflation, and job losses are mounting. The 83,000 new private-sector jobs created in May are really a net loss because 125,000 jobs are needed merely to keep up with population growth. The number of Americans filing new claims for unemployment benefits edged higher last week.
At the same time, many Americans are falling behind on their mortgage payments. And housing prices continue to drop ― making homeowners feel even poorer.
Close to 60 percent of the half-trillion-dollar drop in household debt since the depth of recession has been defaults, not repayments. This makes it harder for people who’d like to enter the housing market to get new mortgage loans, or for anyone to refinance.
All of this translates into a continuing crisis on the demand side. Consumers can’t and won’t buy more. Between January and March, sales grew just 0.15 percent around the country ― perilously close to no growth at all. May sales look even worse. Chain stores are reporting weaker sales. Consumer confidence has dropped sharply.
How to get jobs back, then? By reigniting demand. Put more money in consumers’ pockets and help them renegotiate their mortgage loans. Exempt the first $20,000 of income from payroll taxes. Recreate the WPA for the long-term unemployed. Allow distressed homeowners to declare personal bankruptcy on their primary residences so they can reorganize their mortgage loans.
But we’re not hearing any such demand-side solutions from the White House.
To the contrary, Obama is putting forth Republican supply-side ideas ― lowering the employer costs of hiring, cutting corporate taxes ― that have nothing to do with the demand-side crisis. He may attract enough Republican votes to enact these, but what’s the point if they’re irrelevant to the real problem?
The president’s putative embrace of the false notion that businesses need more financial incentives in order to hire also risks giving legitimacy to other Republican supply-side nostrums. House Republicans and GOP presidential aspirants are calling for lower taxes on corporations and on the rich.
The president should advance ideas that will work and then go to battle for them.
Supply-side economics doesn’t work. It’s been tried for 30 years, to no avail. And now, when our continuing economic crisis is so palpably being driven by inadequate demand, it’s more bogus than ever.
The last thing we need is for the president to go over to the supply side.
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.” ― Ed.
(Tribune Media Services)
