With the unemployment rate above 10 percent and states across the country facing budget shortfalls left and right, Democrats in Congress are looking at a handful of measures to spur job creation, which could be included in a package introduced in the next month or so.
At the same time, deficit-mania has infected a wide swath of the political world, including the White House, which is reportedly going to “focus extensively on cutting the federal deficit in 2010.” On a conference call today, I asked Speaker of the House Nancy Pelosi (D-CA) how she plans to reconcile the inevitable deficit complaints with the need to pass a jobs bill that has enough in it to make a difference:
We don’t subscribe to the idea that some are for deficit reduction and some are for job-creation…We’re never going to decrease the deficit until we create jobs, bring revenue into the Treasury, stimulate the economy so we have growth. We have to shed any weakness that anybody may have about not wanting to be confrontational on this subject for fear that we’d be labeled not sensitive to the deficit. […]
The American people have an anger about the growth of the deficit because they’re not getting anything for it. Again, we don’t have to go into everything they have lost while Goldman Sachs is giving out, is it $17 billion in bonuses?…So if somebody has the idea that the percentage of GDP of what or national debt is will go up a bit, but they will now — and their neighbors and their children — will have jobs, I think they could absorb that…If we pull our punch, as they did in the mid-30’s, we shouldn’t be surprised if history repeats itself.
Pelosi advocated front-loading an infrastructure bill, that would be paid for over the course of many years, as one approach, and also talked about work sharing, an idea that has gained some steam in recent weeks. To pay for a jobs bill, Democrats are looking at implementing a financial transactions tax (FTT), which in practice would mean that Wall Street shoulders the bulk of the cost.
The point about history repeating itself should be well-taken. During the Depression, Roosevelt had managed to knock the unemployment rate down to 14 percent, from 24 percent, by 1937. But then, as Paul Krugman has aptly explained, Roosevelt “mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.”
Yesterday, International Monetary Fund Managing Director Dominique Strauss-Kahn reiterated this point, saying that exit from stimulus efforts should “await a sustained recovery in private demand, as well as entrenched financial stability.” “We recommend erring on the side of caution, as exiting too early is costlier than exiting too late,” he said.