EZRA KLEIN

The Latest Jobs Plans on the Hill

Posted May 09, 2011, at 9:47 p.m.
OpArt by Chris Ware

This might be the best jobs report we’ve had since Lehman collapsed, but even the best jobs report in years — the other good jobs reports were inflated by temporary census hires — isn’t good enough. We can add 244,000 jobs a month and not get back to pre-recession unemployment until 2016. We remain 7 million jobs below where we were in November 2007. We have a long, long way to go. And Congress is following the wrong map.

As Paul Krugman writes, though the “D.C. economic discourse is saturated with fear: fear of a debt crisis, of run-away inflation, of a disastrous plunge in the dollar,” there is “an absence of any action to deal with the real crisis, the suffering now being experienced by millions of jobless Americans and their families.” But in the past week, there were some signs that might be changing: Senate Republicans released a jobs agenda, and so too did House Democrats.

It’s the first time since the election that the two parties have actually laid out their job-creation ideas. And it’s not encouraging.

First, note the authors. House Democrats. Senate Republicans. In other words, the two minorities. House Republicans haven’t proposed a jobs agenda, and neither have Senate Democrats, nor has the Obama administration. The powerful actors in the political system are arguing about budget deficits. It’s the powerless actors who are talking about jobs.

And even that might be overstating the case. The Senate Republicans’ program has a lot less to do with jobs than with the size of government and the size of deficits. In fact, the first section, “Living Within Our Means,” doesn’t even mention the word “jobs.” It proposes a balanced budget amendment, a spending cap and “immediate” and “substantial” spending cuts — all of which would cost jobs in the short term, even if you believe they’d help the economy in the long term. As the International Monetary Fund concluded after looking at an array of similar austerity efforts, “A fiscal consolidation equal to 1 percent of GDP typically reduces GDP by about 0.5 percent within two years and raises the unemployment rate by about 0.3 percentage point.”

There’s much more in the Senate GOP’s plan, of course: They want to cut corporate taxes, get rid of regulations, reform worker retraining programs, stop card check (an odd inclusion, as Larry Summers’ birthday will be named a federal holiday before card check passes a Republican House), ratify three pending free-trade agreements, increase both domestic drilling for oil and loan guarantees for nuclear power plants, and repeal the health care law and replace it with a handful of tweaks to the existing health care system.

Some of those items are plausibly related to jobs. Most of them, however, seem curiously distant from the extraordinary condition of the labor market. They’re either GOP perennials, or they’re responses to the Obama administration’s agenda. And they’re mostly long-term policies. What about the here and now?

Republicans argue that the long term can affect the short term. By reducing “uncertainty” about future deficits and regulations, you free up businesses to invest now. But the uncertainty argument is internally problematic: Their balanced budget amendment forces massive cuts to federal spending over the next five years — cuts so deep that even the Ryan budget would be ruled unconstitutionally profligate. It repeals the health care law and begins from scratch. It creates a whole new regulatory process in which Congress, rather than regulators, plays the lead role on major rules. That’s a lot of major change on how the governments works and looks — more, in fact, than we’ve seen in memory, and much more than we’ve seen in the past few years. Insofar as uncertainty stems from  businesses waiting out major policy changes, this seems as likely to exacerbate the problem as solve it. And that’s before you add in the effect of a Washington-induced economic contraction on business confidence.

The House Democrats’ plan is, at the least, more specifically focused on jobs programs: It makes large infrastructure investments, calls for a national manufacturing strategy, offers a variety of investment-related tax cuts and pumps a lot of money into worker retraining. It also relies on some unfortunately protectionist rhetoric — the name, “Make It in America,” suggests our problem is competition abroad rather than a financial crisis here at home — and includes, like the GOP plan, some seemingly random elements, including protection for derivative end-users and a new task force to protect the Internet. Notably, it includes some points of agreement with the Republican plan, like corporate tax reform.

Usually, economists argue over whether unemployment is “cyclical,” which is to say the result of too little spending in the economy, or “structural,” which is to say the result of workers whose skills or locations don’t match the economy’s available jobs. The plan proposed by the House Democrats agrees with both theories, including new infrastructure spending to create jobs and new money for retraining to upgrade worker skill sets. But it’s not big enough to make much of a difference.

The plan proposed by the Senate Republicans ignores both theories of unemployment and focuses instead on the size of government and the long-term deficit. You can argue that that approach will yield long-term dividends, but it will not, on its own, fix the short-term unemployment crisis.

What’s perhaps most frustrating about these two plans, however, is how clearly they suggest a compromise that should, but won’t, happen. The Democrats believe we need much more short-term stimulus and worker support. The Republicans believe we need long-term deficit reduction. Those two goals, as economists have been pointing out for the past two years, are actually complementary. We could have a single bill that supported the economy and the jobless now and cut back on spending and raised taxes later. In one fell swoop, we could address the cyclical, structural and long-term concerns contributing to the unemployment crisis. We could help workers and reassure investors, increase demand in 2011 and cut the deficit in 2014.

But we won’t. The only people in Washington who seem to care about jobs anymore are those who can’t do anything about them.

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