Anemic job growth persists in June with little over 80,000 new private sector jobs created last month. Anticipating these numbers, several writers this week warned that the real deficit to address is the jobs deficit. Economics columnist, David Leonhardt, cautions that the US is cutting back public sector budgets at just the same time as the rest of the world's economies – putting us on a sure path to a double-dip downtown. Who, after all, will create the demand needed to put people back to work?
Without an obvious answer to this question, Leonhardt opens his column with a stern warning: “The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.”
Clinton-era Labor Secretary, Robert Reich believes that there is a 50/50 chance of a double dip recession: "The May jobs report shows there's not enough oomph in the economy because consumers don't have the dough," moreover, the tepid job growth (which fails to keep up with new job seekers entering the labor market) is not enough. "In a typical recovery, we would expect far better. And we've fallen into a far deeper hole than in a normal recession, so the recovery has to be much bigger." By Saturday, Reich was more emphatic: “The economy is still in the gravitational pull of the Great Recession and all the booster rockets for getting us beyond it are failing. The odds of adouble-dip are increasing.”
Even the Economist magazine, concedes poor economic performance (although it rejects the “double-dip” thesis): “The economy already faces some headwinds from expiring fiscal stimulus (the unemployment benefits and the home-buyer tax credit are the most obvious examples), and those headwinds will build over the coming six to nine months. The test for the recovery is whether private demand will be strong enough to overcome those headwinds.”
The problem with “private demand” is that the global ruling class consensus, evidenced at the Toroto G20 meetings last week, is that it is likely the only game in town: governments everywhere are cutting back irrespective the result misery. The Economist signaled this turn with under the sharp heading: “Goodbye Keynes, Hello Hoover.”
Paul Krugman concludes his first Friday’s column by connecting the economic dogmatism with real world consequences: “what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good. And real-world policy — policy that will blight the lives of millions of working families — is being built on that foundation.”
Earlier in the week, Krugman wrote of the “Third Depression”: a long recession rather than a Great Depression: “And this third depression will be primarily a failure of policy. Around the world… governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.”
On Independence Day, Krugman identified the responsible party: “a coalition of the heartless, the clueless and the confused,” by which he meant, the Republicans who refused to extend unemployment benefits. Forsaking any impact on the first part of the coalition, he addresses the “confused.” Even from his perch at Princeton and the New York Times, Krugman faces an uphill battle: President Obama’s balancing act concedes the battle of ideas to the Republicans: “Government can’t and should not replace businesses as the engines of growth and job creation in our economy.” But finds a narrow space for intervention: “there are times when only government has been able to do what individuals couldn’t do and what corporations would not do.”
History’s open challenge to Obama is to seize the opportunity to simply do “what individuals and what corporations would not do.” Journalist Andrew Reinbach—who was the first to nail Donald Trump—makes an eloquent and politically savvy case for another WPA: “Between 1935 and 1941, the WPA provided almost eight million jobs at a cost of $11.4 billion… Adjusted for inflation, that's about $144 billion today: $20.57 billion a year for seven years, $14.4 billion for ten. By comparison, the 2010 Defense budget is $663.8 billion.” Reinbach finds the political space for the program: make the 2010 elections a referendum on jobs!