Austerity Discredited, Not Defeated – Time to Fight for Jobs and Growth

For four long years after the recession officially ended, conservative austerity policies have sabotaged America’s economic recovery, condemning millions of Americans to unemployment and poverty. And in Europe, the same policy regime of spending cuts aimed at deficit reduction has thrown most of the continent back into recession.

Austerity has been intellectually discredited in recent months. But conservative spending cuts still dominate policy. And last week’s jobs report shows public sector layoffs are still a serious drag on the U.S. economy.

Economists at the Political Economy Research Institute found fundamental flaws in the work of Harvard’s Reinhart and Rogoff — up until then conservatives’ best case for austerity. But, despite this intellectual victory, sequestration still cripples our recovery.

Officials at the IMF and the World Bank admitted their demands for more austerity in Europe had been misguided. But German bankers are still imposing severe budget cuts as the price for financing the debts of southern European countries.

The Center for American Progress, previously strong supporters of President Obama’s search for a deficit reduction “grand bargain,” came out against austerity as having harmed U.S. and European growth and called for a policy “reset” rejecting further spending cuts. But in September or October, conservatives in Congress are getting ready to hold the world economy for ransom by (once again) refusing to raise America’s debt limit until the president agrees to another round of damaging spending cuts.

Americans have a choice:

We can pretend that the economy is recovering. We can try to convince ourselves and our neighbors that job creation that leaves more than 23 million people in permanent unemployment or underemployment represents the best we can do.

Or we can take action to achieve full employment soon — not by the end of the decade.

Step One: We need to break the grip of conservative austerity policies.

• Cong. John Conyers and colleagues have introduced a simple bill that would get rid of the sequester. Conservative economists a Macroeconomic Advisers estimate that would prevent the eradication of at least 700,000 jobs and allow the economy to grow by close to 1 percentage point faster. So, let’s convince Congress to act.
• Another debt ceiling fight is looming. President Obama has promised that this time (in September or October), he won’t give in to conservatives demands for job-killing conditions. Let’s back him up: No more damage to our fragile recovery.

Step Two: Stopping austerity would take the conservative foot off the brakes. But that’s not enough. We also need to step on the jobs accelerator. The Back to Work Budget of the Congressional Progressive Caucus (CPC) is the best plan to spur jobs and growth. The Economic Policy Institute describes its impact:

• Promoting job creation and economic recovery. The Back to Work budget would sharply accelerate economic and employment growth; it would boost gross domestic product (GDP) by 5.7 percent and employment by 6.9 million jobs at its peak level of effectiveness (within one year of implementation).
• Targeting a full-employment economy. The budget would rapidly restore the unemployment rate near to pre-recession levels of 5 percent.
• Restoring full economic health. U.S. economic output is currently $985 billion (5.9 percent) below potential, and the economy is projected to remain 6 percent below potential in 2013 under current law. The budget would effectively use fiscal stimulus to restore actual GDP to potential GDP — the key barometer for restoring full employment in the economy.
• Financing job creation and public investments. The budget finances roughly $700 billion in job creation and public investment measures in 2013 alone and $2.1 trillion over 2013-2015. This fiscal expansion is consistent with Economic Policy Institute estimates of the fiscal support needed to rapidly restore the economy to full health (Bivens, Fieldhouse, and Shierholz 2013).
• Targeting a sustainable debt level. After increasing near-term borrowing to restore full employment, the budget gradually reduces the debt ratio to a fully sustainable 68.7 percent of GDP by FY2023.

But, wait, you say: a plan as ambitious and as expensive as the Back to Work budget would never pass — not in this Congress. And you would be right. But that is true of any jobs plan, given conservatives’ ability to prevent any bold action.

Should we instead shift from jobs for all to better wages?

Many organizers and groups, feeling full employment is politically impossible, have focused on raising wages and improving job quality, sensibly trying to reverse the decades of dynamics shifting income away from workers and to the rich: fighting for union rights, raising the minimum wage, for a better trade policy that creates good jobs, and a shift increase wages in the growing service sector. These campaigns are vital — and to the extent they succeed, higher wages stimulate jobs and economic growth.

But in a paper published by CEPR (Center for Economic and Policy Research), University of Iowa Historian Colin Gordon shows that a big part of the cause of declining wages story over past decades “is simply slack in the labor market.”

“Over the past generation, the only respite from unrelenting downward pressure on wages came during a brief spell of full employment in the late 1990s. Those years saw wage gains across the board, closely resembling the shared prosperity of the 1947-1973 era. But on either side of that boom, when high rates of unemployment were the norm, wages (especially for those at the median and below) fell steadily.”

So, while we work to raise wages on the jobs we actually have, we should remind our policy-makers that creating more new jobs has a big impact on achieving higher wages.

Therefore, this may be one of those rare times when boldly telling the truth about what it will take to truly achieve our full employment policy objective represents good politics — because claiming that full employment can be achieved based on momentum alone in the face of serious headwinds (as Democrats argued in the run-up to the disastrous 2010 election) simply won’t work. Americans, battered by years of slow growth and a bad economy, want the truth.

There are plenty of other plans, each more or less ambitious about job creation and growth:

Economic Policy Institute: Investing in America’s Economy

Prosperity Economics

Cong John Conyers: Jobs-For-All Bill

Center for American Progress: “300 Million Engines of Growth

Senate Budget Committee Chair Patty Murray’s: Foundation for Growth: Restoring the Promise of American Opportunity

Perhaps the most cautiously packaged of these jobs proposals is President Obama’s
American Jobs Act, first released and introduced in September 2011 — and then in updated version in early 2013. The president proposed:

Social Security tax cuts and tax reductions for small businesses, a total of $447 billion in spending, including $130 billion in job creation through infrastructure and creation of new jobs, and $65 billion to increase teacher numbers and modernize schools.

Representative Frederica Wilson (D-FL) will soon announce a modified version of that Obama plan, which she calls The American Jobs Act of 2013. She confronts austerity by ending sequestration. And, concerned about undermining Social Security, she replaces that tax cut with tax credits to give low- to moderate-income Americans greater purchasing power and offset the impact of the recent reinstatement of the full payroll tax. It also provides tax credits to small businesses for hiring out-of-work veterans and making new job-creating investments.

The rest of her plan is pretty close to President Obama’s jobs plan. And she will remind Americans that, according to independent analysis by Moody’s, the Obama plan would have created 1.9 million jobs and boosted growth by two percent if passed when originally introduced.

Some may object that this is pretty small, compared to the Back to Work Budget. But for that very reason, the American Jobs Act of 2013 could be a good test of which Representatives and Senators are willing to support anything at all to create jobs.

Ask questions and take names:

Who is willing to oppose austerity…

• By repealing the sequester?
• And by raising the debt limit without job-killing conditions?

And who is willing to step on the job creation accelerator by — at the very least — supporting the American Jobs Act of 2013?