Thursday, February 17, 2011

Mr. Boehner, where are the jobs?

Republicans took control of the House last November by taunting President Obama and the Democrats with "Where are the jobs? Republicans said their campaign was about creating jobs, but since they took office it’s clear that cutting government spending comes first, last and always -- now that they've cut taxes for the rich.

How can Republicans fight for massive tax breaks for the rich and as soon as they get that immediately pivot into being reformed big spenders who now claim to be deficit hawks, and do it without looking like hypocrites? Good question, but it appears that they ARE getting away with it and, much to the dismay of many who supported him, President Obama has also bought into this nonsense. 

Republicans say a smaller government eventually will spur private-sector job growth. Yeah, eventually. However in the mean time, government spending pays for research, infrastructure, education and other programs that create or protect existing public- and private-sector jobs.

GOP leaders already acknowledge that thousands of government workers would lose their jobs in the short run under the $61 billion cost-cutting bill they are pushing. The Economic Policy Institute says that overall, the House GOP plan "would likely result in job losses of just over 800,000."

If that happens, "so be it," said House Speaker John Boehner, R-Ohio. "We're broke." After the outcry over that remark, Boehner told reporters, "I don't want anyone to lose their jobs," but "we've got to make tough decisions."

The evidence that federal spending hurts job growth "is thin to nonexistent," says Princeton economist Alan Blinder. If the economy were running at full capacity, he said, Republicans would have a valid argument in saying that an extra federal hire or expenditure might displace a private-sector hire or expenditure. But there's a lot of "slack in the economy," he said.

Alexander J. Field, an economics professor at Santa Clara University, said “spending cuts should be pursued when economies are strong, not weak,” and “the House Republicans' agenda would probably increase unemployment.”

Republicans are repeating an economic policy right out of the 1930s — they want to cut spending before a recovery is assured. As the country began to recover from the Great Depression, Republican complaints about rising budget deficits forced President Roosevelt to agree to steep budget cuts. From 1933 to 1937, the United States economy expanded more than 40 percent, even surpassing its 1929 high. But the recovery was still not durable enough to survive the spending cuts, and in 1938 the economy shrank 3.4 percent and unemployment spiked. It took the increased spending from the military buildup prior to the start of World War II to create a lasting recovery.

Corporate profits are up. Stock prices are up. So why isn't anyone hiring? Actually, many American companies are hiring  -- overseas. This is why unemployment remains high in the United States, edging up to 9.8 percent last month, even though companies are performing well: All but 4 percent of the top 500 U.S. corporations reported profits last year, and the stock market is close to its highest point since the 2008 financial meltdown.

But the jobs are going elsewhere. The Economic Policy Institute says American companies created 1.4 million jobs overseas last year, compared with less than 1 million in the U.S. Those 1.4 million jobs would have lowered the U.S. unemployment rate at least one percentage point.

Manufacturing of durable goods is moving overseas along with the jobs. Congress needs to do something to reverse this trend before the American middle class disappears completely. America cannot survive without a strong middle class because without their purchasing power economic activity and job growth will continue to suffer.

The answer is not lower wages for workers and lower taxes for business who are headquartered in the US but do all their manufacturing overseas.  American workers cannot compete with workers in developing nations who work for poverty-level wages without lowering their standard of living to poverty level as well. If we’re going to continue to give tax breaks to business they should be used as an incentive to create jobs in the US.

Another blog post by Ken Padgett