Which is more likely to reduce the long term debt our children will have to pay:
1) Cutting back on government spending now to reduce budget deficits in 2011 and 2012?
2) Expending an additional half a trillion dollars in a second Recovery Act to finally get the economy back into gear, thus reducing government deficits by simply ending the recession and then ending deficits in years to come when ‘safety net’ costs are reduced and tax collection increases as the economy prospers?
A thorough report by AP economics writers from the front page of the Intelligencer Journal New Era provides ample evidence for adopting the second approach which is advocated by most economists and what the Obama Administration would really like to do but are afraid to advocate because they would be pilloried by conservative ideologues and / or opportunistic Republicans.
The sub heading is “Poor job creation, continuing job cuts and salary levels that don’t encourage spending are combining to create a bleak economic outlook.”
Let’s sample the disturbing facts:
1) “Private employers reported a net gain of 71,000 jobs for July – far below the 200,000 it takes for the unemployment rate just to hold steady and keep pace with the growing work force.”
2) “So far this iyear, state and local governments wrestling with budget shortfalls have shed 169,000 jobs.”
3) “So far this year, the economy has adaded only 117,000 high-paying jobs … Over the past 12 months, it has lost 352,000 of these jobs.”
4) “The ‘underemployment’ rate was 16.5 percent, the same as in June.”
5) “The annualized savings rate reached 6.4 percent, the highest level in nearly a year – and triple the rate in 2007, before the recession.” (Interpretation: People are scared to death and bracing for the worse.)
Meanwhile, the impact of the Recovery Act stimulus package passed in early 2009 will diminish at the end of this year and largely disappear in 2012.
As Yogi Berra once allegedly said, “This is déjà vu all over again.” As the nation was climbing out of the Great Depression in 1933, conservatives bemoaned the deficit spending and the government raised taxes and reduced expenditures in an endeavor to balance the budget. It put the nation back into the Depression, this time even worse than before. (Only the stimulus resulting from demand for armaments due to the outbreak of the Second World War in Europe enabled prosperity to return.)
There is talk that the Federal Reserve is going to do something to stimulate the economy through monetary policy. But there is little, if anything, they can do with interest rates to banks already approaching zero. So recovery depends upon fiscal stimulus coming from the federal legislators.
There is nothing more costly than idle people and idle resources. There is plenty of work to be done to rebuild our infrastructure and prepare for the future. It is better pay people for repairing bridges and engineering the much needed electrical grid than pay them for sitting at home. Let’s seize the moment.
