My relief that Mitt Romney was not going to be our president, with a Republican Senate along with the House of Representatives, barely lasted through Tuesday night. By my lights, a lot of terrible stuff and a completely wrong direction in our policy and politics have just been avoided. Whew! But after months of both Republicans and Democrats talking about the lack of jobs being produced by our lackluster economy, with political reporters, operatives, and pundits hanging on the next unemployment report as if it might be vitally important for the future of the republic — by the end of the week our 8% official unemployment rate (and Romney’s oft-repeated “23 million unemployed and underemployed workers”) was again just one of those inconvenient realities that we’re going to have to live with.
President Obama’s victory speech Tuesday night looked ahead to his second term and promised to focus on “reducing our deficit” along with some other things (“reforming our tax code, fixing our immigration system, freeing ourselves from foreign oil”), with no mention of getting our economy growing at a rate that can reduce our debilitating unemployment and the damage it is doing to all of our lives, some of us much more than others. Then, as the Wall Street Journal headlined two days later, “Political Focus Shifts to ‘Fiscal Cliff’,” and it’s all about budgets and the need for “shared sacrifice” and a “balanced approach” to easing the economy farther downhill rather than going off a cliff.
The fiscal cliff is not just about deficits. It’s about jobs – jobs in an economy where there are not nearly enough of them for everybody who wants and needs them. If the spending cuts and tax increases currently scheduled to take effect January 1st actually would take effect and then remain in place for all of 2013, it would reduce the federal deficit, at least at first, by more than $600 billion – that is, “cutting the deficit in half,” as the President once promised. But it would also throw us back into recession and eliminate more than 4 million jobs.
Jobs and deficits are related. Federal budget deficits (spending more than you take in in taxes) fuel economic growth and create jobs. Likewise, stronger, faster economic growth creates jobs and, thereby, reduces federal budget deficits. Without the annual $1 trillion deficits the federal government has been running since President Obama took office, we would still be in the Great Recession – or worse. Right now, we need those deficits. Cut them substantially, and you reduce economic growth and kill jobs.
Even though some Republicans deny it and almost no Democrats will say it, all the political players, including what is euphemistically called “the business community,” know these basic principles of macroeconomics. They know that rapidly cutting the deficit in half – whether by cutting spending, increasing taxes, or some combination of the two in a so-called “balanced approach” – will send the economy back into its 2008-09 tailspin. That’s why all the political players fear the fiscal cliff, and that widespread fear is also why we will not go over it.
But how we avoid the fiscal cliff matters. And just avoiding it will at best leave us where we are, with a stagnant economy growing at 2% a year and with an official unemployment rate near 7% as far as the eye can see. We also need to stimulate the economy immediately, get it growing fast enough so that it is creating 300,000 or 400,000 jobs a month (versus the recent trend of 150,000 a month). This will increase the deficit in 2013, but it will also do more to cut the deficit in the long run than any spending cut or tax increase could do.
For a guide on how to avoid the fiscal cliff, see the Economic Policy Institute’s September policy brief, “A fiscal obstacle course, not a cliff” by Josh Bivens and Andrew Fieldhouse. It’s very wonky and can be hard to follow in spots, but it’s only 13 pages of text. And it has a wonderful table on page 7 that lists the various laws that expire at the end of this year and shows both how much each expiration will reduce the deficit AND how many jobs it will kill. The fiscal cliff is not just the Bush tax cuts – which will lop $64 billion off the 2013 deficit if only the high-income cuts expire, but will also cut 102,000 jobs. The cliff also includes Obama’s special recession-fighting unemployment compensation program (whose expiration will reduce the deficit by only $39 billion but will eliminate 448,000 jobs) and the expiration of the payroll tax cut (which will reduce the deficit by $115 billion but at the cost of killing more than one million jobs).
Bivens and Fieldhouse use these calculations to show how a jobs-sensitive strict cost-benefit analysis would lead to renewing (and even enhancing) federal government spending programs rather than renewing any of the tax cuts, while also showing that tax cuts targeted to lower- and middle-income workers create more jobs than those going to the wealthy and other high-income earners. Tax increases do kill jobs, just as Republicans always say, but cuts in government social spending kill many, many more.
There is a lot of complicated economics here, and the politics of avoiding the fiscal cliff may be even more complicated. I sympathize with the President and Congressional Democrats for having to work through these daunting problems while dealing with House Republicans. But the President started on the wrong foot Tuesday night by focusing on “reducing our deficit.” That’s a job killer if you do it now and if you do it the wrong way. With an economy growing at 2% (at best) and an unemployment rate hovering around 8%, the very last thing we need now is to reduce our deficit. Rather, first we need to preserve our deficit and the jobs it is supporting. And then we need the President’s American Jobs Act with its increased spending for infrastructure and for state and local governments to hire and rehire “teachers, cops, and firefighters” – namely, the stuff he campaigned on, the promise of “Forward.” Reducing our deficit and a long-term plan for managing our accumulating national debt are for later, not now. Right now we need jobs, millions of them. And we need our newly elected President paying attention to that in a way he has not since February of 2009.
Chicago Working-Class Studies