"Fear itself" is bad enough, but many Americans are beyond fear when it comes to unemployment. "Desperation" is a better word. Bob Herbert reminds us that FDR, in his much-quoted speech about " fear, also said this: "Our greatest primary task is to put people to work."
In his final days as president, George W. Bush sprang to the assistance of Wall Street -- not the about-to-be 10% of us who had lost or were about to lose their jobs. President Obama at least created the stimulus program. Towards the end of his first year in office it's clear that the effects of the stimulus have helped to turn the economy around. But unemployment persists, increases, and has shown only small signs that it, too, will turn around ... eventually.
Eventually is a long time for someone out of a job. The White House is now trying to figure out how to put more people to work while avoiding a loud insurrection on the right at the prospect of another stimulus package. Here's the frame: the new stimulus package will be an extension of the original effort.
President Obama’s economic team discussed a wide range of ideas at a meeting on Monday, following his Saturday radio address in which he said it would “explore additional options to promote job creation.” But officials emphasized that a decision was still far off and that in any event the effort would not add up to a second economic stimulus package, only an extension of the first.
While much of the fresh "stimulus" would be directed at prospective employers, it would also include an extension of unemployment and health benefits. The impact on the deficit will be considerable but as many economists have pointed out for the past year, deficit increase is clearly necessary, natural, and hardly crippling.
Among the options for additional steps is some variation on Mr. Obama’s proposal during the stimulus debate to give employers a $3,000 tax credit for each new hire, which Congress rejected last winter partly out of concern that businesses would manipulate their payrolls to claim the credit. Another option would allow more businesses to deduct their net operating losses going back five years instead of the usual two; Congress limited the break to small businesses as part of the economic stimulus law.
The search for further remedies is part of a two-track effort in the White House and Congress. Democrats are also considering plans to continue through 2010 the extra unemployment assistance and health benefits available to people who are out of work for long periods. Also likely to be retained, some officials say, is a popular $8,000 tax credit for first-time homebuyers that was included in the $787 billion stimulus law and has helped rouse a housing market that nonetheless remains shaky.
The unemployment and health benefits are otherwise due to expire at the end of this year, and the homebuyer’s credit at the end of November. Extending the unemployment and health benefits alone through next year could cost up to $100 billion. Additional measures would raise the price at a time when the White House and Congress are confronting growing pressure to avoid adding to already high deficits.
If you look beyond the media and rightwing cant, once again you find that words have been used to reduce, not increase public understanding. "Deficit" has become a word used to control political action. "Deficit" is not the problem. Just look at history.
Could it be that -- once again! -- the right is manipulating the frame in order to prevent any effective political action? After all, the two terms of George W. Bush set up the situation which brought down the economy. Relax! Let's let historians decide whether the destruction was largely deliberate and intentional.In World War II, from 1940 through 1945, the ratio of US federal debt to GDP rose to about 125 percent. Was this unsustainable? Evidently not. The country won the war, and went on to 30 years of prosperity, during which the debt/GDP ratio gradually fell. Then, beginning in the early 1980s, the ratio started rising again, peaked around 1993, and fell once more.
Thus, a stable ratio of debt to GDP is not a normal feature of modern history. Gradual drift in one direction or the other is normal. There seems no great reason to fear drift in one direction or the other, so long as it is appropriate to the underlying economic conditions.
History has a second lesson. In a crisis, the ratio of public debt to GDP must rise. Why? Because a crisis – and this really is by definition – is a national emergency, and national emergencies demand government action. That was true of the Great Depression, true of war, and true of the Great Crisis we're now in. Moreover, we've designed the system to do much of this work automatically. As income falls and unemployment rises, we have an automatic system of progressive taxation and relief, which generates large budget deficits and rising deficits. Hooray! This is precisely what puts dollars in the pockets of households and private businesses, and stabilizes the economy. Then, when the private economy recovers, the same mechanisms go to work in the opposite direction.
For this reason, a sharp rise in the ratio of debt to GDP, reflecting the strong fiscal response to the crisis, was necessary, desirable, and a good thing. It is not a hidden evil. It is not a secret shame, or even an embarrassment. It does not need to be reversed in the near or even the medium term. If and as the private economy recovers, the ratio will begin again to drift down. And if the private economy does not recover, we will have much bigger problems to worry about, than the debt-to-GDP ratio.
