Wednesday, June 30, 2010

What Michael Said

Michael Hiltzig, business columnist for the Los Angeles Times, like Paul Krugman, who occupies a similar chair at the New York Times, is dismayed by the sudden and disastrously timed push for fiscal austerity by the federal government. Both fear that the move away from stimulus policies is a recipe for not just the prolongation of economic recovery but also for its death.

Hiltzig's most recent column was written after he and other colleagues from LAT met with Lawrence H. Summers, director of President Obama's National Economic Council. He came away with some depressing news.

Gross domestic product is rising, but the annual growth rate in the first quarter of this year, 2.7%, is slower than that of the previous quarter (5.6%). It's also slower than the rate needed for job growth to keep pace with population growth (3%) or the 5% needed to bring down the unemployment rate, which is 9.7%.

The economy has added jobs since the beginning of the year, but employment in May was still below the level of May 2009. ...

Long-term unemployment has become "a particularly disturbing feature of this recession," Summers says.

"There is evidence that people who have been out of work for a year tend to have a difficult time returning and often drop out of the labor force," he says. "That is going to cast a shadow for some significant interval."

It is the effect of this jobless "recovery" on the public that clearly worries Mr. Hiltzig most, as well it should. It should worry all of us because of the way it is playing out:

Nor has there been a reversal in the trend toward increasing income inequality in the United States. In 1979, the top 1% of U.S. households earned eight times as much as the middle 20% and 23 times as much as the bottom fifth; by 2005, the Congressional Budget Office found, the upper crust touched 21 times as much as the middle class and 70 times as much as the bottom.

This phenomenon "has a broadly corrosive social impact in terms of our not being one America," said Summers, echoing the economist Benjamin M. Friedman, who observed in 2006 that the 1950s and '60s, when median family income doubled, brought us such progressive social developments as the civil rights movement.

Over the succeeding decades the social fabric has frayed, Friedman wrote. Public opinion has turned sharply against immigration and affirmative action, and attacks on welfare recipients display "a vindictive spirit that was highly uncharacteristic of the United States in the postwar era."

This "corrosive social impact" has surged over the past two years. Other states are threatening to join Arizona in its unconstitutional drive against immigrants. Alleged Democrats such as Dianne Feinstein of California recently expressed the view that the unemployed should just get a job rather than count on the extension of benefits. Tea Partiers are rallying not against a federal government which bailed out the banksters but against a federal government which passed a health care bill that would extend health care to those who can't now easily afford it.

Yet the White House and other world leaders continue to push for fiscal austerity. All apparently believe that joblessness means less tax revenues so governments must stop spending money, rather than realize that if joblessness were reduced tax revenues would rise and offset deficits.

As a result, Mr. Hiltzig fears things will not only not get better, but will in fact get considerably worse:

The deficit-cutting craze of the modern day threatens another such double dip. Its promoters say they're out to protect long-term economic prospects, but without a short-term recovery there may not be a long term to protect. If they get their way, we may not feel the consequences of their error before it's too late to fix.

And that is a scenario I do not want to contemplate.



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