Focus on Jobs, Not the Deficit
UPDATED NOVEMBER 8, 2012, 4:51 PM
President Obama’s victory gives him an opportunity to hit the economic reset button and alter the public’s view of America’s central economic challenge. It’s not to reduce the budget deficit. It’s to create more good jobs, grow the economy and widen the circle of prosperity.
The deficit is a problem only in proportion to the overall size of the economy. If the economy grows faster than its current 2 percent annualized rate, the deficit shrinks in proportion. Tax receipts grow, and the deficit becomes more manageable.
Any grand deficit reduction should start when unemployment is at 6 percent and growth at 3 percent growth for two quarters.
But if economic growth slows — as it will, if taxes are raised on the middle class and if government spending is reduced when unemployment is still high — the deficit becomes larger in proportion. That’s the austerity trap Europe finds itself in. We don’t want to go there.
This is why January’s “fiscal cliff” — $600 billion in automatic spending cuts and tax increases — is so dangerous. It’s too much deficit reduction, too quickly. Tax increases on the middle class would reduce their spending just when the economy needs that spending to keep growing, and cuts in government’s own spending would make the problem worse.
If we go over the fiscal cliff, we’re in another recession, according to the Congressional Budget Office and most private economic forecasters.
The way to ensure continued growth is to keep taxes low on the middle class — continue the president’s payroll tax cut and extend the Bush tax cuts for income under $250,000 — and continue government spending.
The way to increase growth is to make the payroll tax cut permanent — or, better yet, permanently exempt the first $20,000 of income from the payroll tax and make up for lost revenue by raising the ceiling on income subject to it (that ceiling is now $110,100). And increase government spending, especially on critical public investments like education, job training and infrastructure.
Any “grand bargain” on deficit reduction should contain a trigger for when it starts — and that trigger should be when the economy can safely be assumed to be back on track. I’d make that trigger 6 percent unemployment and 3 percent economic growth for two consecutive quarters, and make sure that trigger was right in the legislation.
Finally, the president needs to make it clear to the public that over the long term, the only way we can achieve a better economy is through a larger and more buoyant middle class. If we continue lurching toward widening inequality and ever more concentrated income and wealth at the top, the vast middle class — as well as all those who aspire to join it — won’t have the purchasing power to grow the economy and create more jobs.
The president’s victory doesn’t give him a clear mandate to reset the economic debate. The margin of victory was too small, and he didn’t tell the American electorate explicitly that his priority would be jobs and middle-class prosperity rather than deficit reduction. But his victory gives him the attention of the nation and the authority that comes with having won re-election, and therefore gives him the opportunity to reframe the debate.
I hope he takes it.
- Robert Reich: Obama’s Next Economy: Why He Must Take This Opportunity to Reframe the Economic Debate (huffingtonpost.com)
- FOCUS | Obama’s Next Economy (readersupportednews.org)
- Robert Reich: Obama’s Next Economy: Why He Must Take This Opportunity to Reframe the Economic Debate (guernicamag.com)
- Obama’s Next Economy (wallstreetpit.com)
- Obama’s Next Economy: Why He Must Take This Opportunity to Reframe the Economic Debate (ukprogressive.co.uk)
- The Next Four Years: Obama’s Steady, Slo-Mo Recovery (businessweek.com)
- Guest Post: The Next Four Years Won’t Be As Good As The Last (zerohedge.com)
- Fortunately, Both Candidates Will Cut Spending Not Raise Taxes: (brothersjuddblog.com)
- Federal deficit tops $1 trillion for fourth year (newsobserver.com)
- The U.S. Fiscal Cliff: Just What The Hell IS IT?? (theobamacrat.com)