Chapter 3 – Recent Developments in 2010
The contested impact of stimulus money (on the details of which, see the 2009 story below) was politically center-stage in the first quarter of 2010. In the context of an economy with no fewer jobs in 2010 than in 2000, but with 11 million more Americans seeking them, unemployment was stubbornly high: stuck at 9.7% in January 2010, with 6 people available for every job place then on offer. The Obama administration’s central claim was that, without the Recovery program, the unemployment situation would have been dramatically worse.
- The President claimed (February 16) that stimulus spending had saved 2 million jobs and prevented a second Great Depression. Support for that claim came from the Economic Policy Institute, whose The Recovery Act Worked report by Ross Eisenbrey documented the degree which, before the American Recovery and Reinvestment Act passed, the rate of job loss was accelerating (reaching over 700,000 jobs lost a month in the winter of 2008-9); and how that rate of job loss has slowed since then, reaching almost zero by December 2009. “By the time President Obama was inaugurated,” Eisenbrey reported, “4.4 million jobs had been lost, and by the time the Recovery Act was passed, 5.9 million jobs had been lost. As the figures make clear, the job losses that were accelerating before the Recovery Act was passed have been virtually eliminated.” (EPI website, posted February 19, 2010)
- The President’s Council of Economic Advisers was more sanguine. In its report to the President, issued the same month, its chairperson Christine Romer predicted only slow job growth in 2010 and 2011 (95,000 jobs a month in 2010, 190,000 a month in 2011 and 251,000 a month in 2010, even with a further stimulus. Job losses continued to run high in manufacturing (over 2 million gone since December 2007); in construction (1.6 million gone over the same period); in financial services (548,000 gone); and in trade, transportation and utilities (1, 730,000 gone). (Details in The Wall Street Journal, February 12, 2010). The non-partisan CBO calculated – also inb February – that it its first year, the American Recovery and Reinvestment Act had indeed saved/created somewhere between 900,000 and 2.3 million jobs.
- Much of the stimulus money remains as yet unspent – maybe two-thirds of the original spending section has yet to be deployed. The $288 billion worth of tax cuts in the Act have been dispensed, as has $159 billion of the appropriated spending. But $229 billion has been allocated but not yet spent; and the remainder has even to be allocated. The expectation appears to be that most of that money, in the second year of the stimulus, will go into infrastructure projects helping stimulate employment in the private sector.
- The Obama administration’s second budget (released February 1) angered many conservatives by allowing the Bush tax cuts on high earners to expire at the end of 2010 – the Wall Street Journal estimated that under this budget, taxes on high earners would rise by $969 billion over the next decade. More liberal commentators worried about the budget for other reasons. They worried that the president continued to frame its presentation in language acceptable top fiscal conservatives, putting his emphasis on the need to significantly reduce the fiscal deficit over time (as though the deficit was the problem, not the economic stagnation to which the deficit was a necessary if temporary corrective). They worried too that the decision to freeze discretionary nonmilitary expenditure from 2011 would tie the administrations hands if the recession proved persistent. Robert Reich tried to explain all that to Wall Street Journal readers (in “The Necessity of Obamanomics”, February 5, 2010) but probably without success!
(On this, see also Paul Krugman, “March of the Peacocks”, The New York Times, January 29, 2010)
Opponents of the ARRA point to waste and misspending already in place. Its supporters point to potential yet unfulfilled. All of which means that the debate about the need to manage market forces is still on-going, and operating against the background of heavy and persistent unemployment in a welfare system used to financing, via unemployment benefit, only short-term job loss. The longer the recession goes on, the more difficult it is likely to be for the Obama administration to lay full responsibility for unemployment back with a Republican administration, and the more conservative forces can and will blame the stimulus package for a lack of economic growth. Indeed that clash is currently frustrating attempts to generate a bipartisan jobs bill, a second round of stimulus to enable both small business and hard-pressed states to create new jobs and to protect existing ones. The second Obama budget earmarked $266 billion for new spending on jobs, but the Senate struggled in February and March 2010 even to pass a much smaller package of tax incentives to firms taking on new workers, and help for state budgets. They did eventually pass a $15billion jobs bill, just one-tenth the size of the House bill passed in December. The Senate bill, passed with bipartisan support, offered tax credits to firms retaining new workers for more than a year, and an exemption from payroll tax for each new hire. It was however tiny compared to what was proposed by the President ($267 billion) or by the Economic Policy Institute (its “American Jobs Plan” proposed spending $400 billion to create 4.6 million jobs in one year). When we realize that 8.4 million jobs have been lost since December 2007, and the 2.4 million new jobs required to absorb new workers failed to materialize, there is a current shortfall of at least 11 million jobs in the US economy. A $15 billion jobs bill is small beer indeed.
Quite properly, the EPI continued to warn – see its March 31, 2010 Briefing Paper #259 – of the very real danger of a jobless economic recovery. As the title of the briefing paper underscores, “For Job Seekers, No Recovery in Sight”. And in this fear they were not alone. Indeed the situation may become even worse – there may be an actual increase in the jobless rate at times through 2010 – as many “discouraged” workers return to actively seeking work. The Washington Post reported Christina Romer (April 5) saying this: “Behind the unemployment rate there’s just been a tremendous increase in the labor force., Over the last three months we’ve added more than a million people to the labor force….that’s a sign that people that might have been discouraged dropped out because of the terrible recession, have started to have some hope again and are looking for work again.”
By April 2010 the ration of job seekers to jobs available was 5.4, down slightly from 6.2 in November 2009. (In September 2003, it had been 2.8). [Washington Post, April 5, 2010)
David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.
He writes here in a personal capacity.