June 24 (Bloomberg) -- Two years after the recession ended, almost 14 million Americans are out of work, including more than 6 million who have been jobless for at least six months. Job seekers outnumber available jobs by more than four-to-one.
Yet most of the political urgency in Washington is focused on the national debt, not on the shortage of work.
Now, some of President Barack Obama’s staunchest supporters -- including congressional Democrats, union leaders, and former administration economists Lawrence Summers and Christina Romer - - are calling for new government initiatives to drive down the nation’s 9.1 percent unemployment rate. They are joined by Bill Gross, manager of Pacific Investment Management Co., the world’s largest bond fund, who this week said “government must take a leading role” in creating jobs.
“Make jobs the centerpiece of everything and forget about this deficit hysteria,” Richard Trumka, the head of the AFL-CIO labor federation, said in an interview.
Even with the clamor, the president hasn’t presented a comprehensive plan to provide work for the bulk of the unemployed anytime soon. The jobless rate won’t fall below 8 percent until 2013, according to the median forecast of 65 economists surveyed by Bloomberg. After an $830 billion stimulus program failed to cut unemployment as much as the administration had predicted, and with Republicans poised to block new spending, Obama has few major policy options left.
‘Make It Worse’
“They may well have concluded in the short-term, there isn’t all that much they can do about it,” said William Galston, a former domestic policy adviser to President Bill Clinton. “To underscore a problem they don’t have a solution for would make it worse.”
That would be a gamble. The latest data on retail sales and payrolls suggest the recovery is in danger of stalling. If job growth stays weak, voters could add Obama’s name to the ranks of the unemployed: No president since World War II has won a second term with unemployment higher than 7.2 percent on Election Day.
“The urgency to do something feels like it’s ratcheting up pretty quickly,” said Jared Bernstein, who was Vice President Joseph Biden’s top economic adviser until April.
The U.S. already has tried to jump-start growth with the stimulus plan, the Federal Reserve’s near-zero interest rates and two rounds of asset purchases that injected money into the economy and expanded the central bank’s balance sheet to more than $2.8 trillion. The economy’s lingering weakness in the face of such steps means there’s little support for trying the same medicine again.
“We’ve pulled a lot of levers and we haven’t had terribly good results,” said economist John Makin of the American Enterprise Institute, a Washington policy research group that supports low taxes and market-driven policies.
It isn’t just Republicans who are worried about the risks posed by the nation’s $14.3 trillion debt.
Martin Baily, chairman of the White House Council of Economic Advisers under Clinton, said the need to bring down long-term deficits takes precedence over any stimulus proposal.
“I don’t think I’d do it even if I could get it through Congress,” he said of a new spending package.
In a Bloomberg National Poll, voters chose jobs over the deficit or federal spending as their top concern by 42 percent to 30 percent. Public hunger for action to spur hiring, however, doesn’t translate into support for public works projects.
Fifty-five percent of respondents to the June 17-20 poll said the government should boost hiring indirectly by cutting spending and taxes, echoing the argument of Republicans.
Better Than Expected
To some extent, the economy’s plight shouldn’t be a surprise. Recessions that follow financial crises last longer than typical downturns, according to Kenneth Rogoff of Harvard University and Carmen Reinhart of the Peterson Institute for International Economics.
The U.S. is even performing better than average on jobs: Following a financial crisis, the unemployment rate typically rises 7 percentage points over a five-year span, according to “The Aftermath of Financial Crises,” a 2009 paper by Rogoff and Reinhart. The U.S. jobless rate peaked at 10.1 percent in October 2009, 5.7 percentage points higher than the pre-crisis low of 4.4 percent three years earlier.
“We’re seeing one of the greatest asset bubbles of all time deflate,” said Representative Jim Himes, a Connecticut Democrat and former Goldman Sachs Group Inc. banker. “Until it runs its course, which may take some time, we’ll continue to see, at best, lackluster growth.”
In appearances in Ohio, North Carolina and Virginia, Obama has claimed credit for averting a depression and putting the economy on the road to recovery. At a Chrysler factory in Toledo, Ohio, this month, Obama likened the economy to a person “hit by a truck” and said: “It’s taking a while to mend.”
He told NBC News that “structural issues” help explain slow hiring. “A lot of businesses have learned to become much more efficient with a lot fewer workers,” Obama said in the June 14 interview.
The U.S. now produces more than it did before the recession using 7 million fewer workers, according to government data.
The president, who today will visit a robotics center at Carnegie Mellon University in Pittsburgh, has long promised to replace a bubble-and-bust economy with one built for lasting prosperity. The administration’s deficit focus thus also reflects an effort to retool for the long haul.
The president has urged better training, education and investment in “technologies of the future.” The goal, he said June 13, is “to make sure that we’re boosting job growth not just over the next year but over the next 20 years.”
“We have a lot before Congress right now,” said Jason Furman, deputy director of Obama’s National Economic Council. “We have a lot of ideas, on infrastructure, on clean energy, on training, in a range of areas.”
Austan Goolsbee, chairman of the White House Council of Economic Advisers, rejected the notion of another “traditional stimulus” package. The administration is focusing on helping the private sector “to drive the recovery,” he said in a June 10 interview with Bloomberg Television.
Goolsbee said the temporary 2-percentage-point cut in the employee contribution to the payroll tax that Congress enacted in December, along with tax breaks for business-equipment purchases, three pending trade deals, and planned regulatory relief will help the economy before Election Day.
The president said he wants to discuss with Congress additional moves, such as extending those tax breaks as well as unemployment benefits scheduled to expire at year’s end.
If an $830 billion stimulus program and 30 months of near-zero interest rates haven’t cured the labor market’s ills, it’s hard to see how more modest measures will, said Galston, now a senior fellow at the Brookings Institution.
“What we’re discovering is the limits of traditional tools when we’re faced by an untraditional downturn,” he said.
Administration officials are counting on a rebound in the second half of 2011 as predicted by Federal Reserve Chairman Ben S. Bernanke. The economy will expand at an annual rate of 2.3 percent in the current quarter and 3.2 percent for the remainder of the year, according to a Bloomberg survey of economists.
Outside the administration, there’s no shortage of ideas. The AFL-CIO wants the government to spend several hundred billion dollars on a jobs program.
“I frankly do not understand why policymakers are not feeling more urgency,” Romer, former chairman of the Council of Economic Advisers, said in a May 5 speech.
Temporary Tax Cut
She and Summers favor a temporary cut in the portion of the payroll tax paid by employers. Summers also wants to deepen the cut in the portion of the tax paid by workers.
Bernstein said the government should take advantage of low interest rates -- it can borrow money today for 10 years at a cost of less than 3 percent -- to fund a $100 billion stimulus.
Republicans and business leaders complain that uncertainty surrounding the administration’s health care, tax and environmental policies is hindering investment. Corporations are sitting on $1.9 trillion in liquid assets.
“Money hates uncertainty,” Robert Kelly, chief executive officer of Bank of New York Mellon Corp., said in a Bloomberg Television interview June 10.
It isn’t clear how much investment could rise before demand increases. In May, industry used 76.7 percent of its productive capacity, below the level reached at the nadir of the 1990-91 recession, according to the Federal Reserve.
“If we had customers, we’d have a reason to hire,” said William Dunkelberg, chief economist for the National Federation of Independent Business.
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