By all accounts, tomorrow is going to be a really bad jobs number. Instead of convergence to full employment, it’s likely to be more stagnation. It’s time to rethink where we are on jobs in the short-term. But what do the parties currently think?
For good reason, a lot of people are beating up on the Republican jobs plan (see Ezra Klein, Andy Kroll, Steve Benen). We’ve spent plenty of time here pointing out the incoherence of expansionary austerity, monetary tightening and supply-side arguments the GOP have cobbled together to fix the economy. But at least it has a 1-2-3 logic to it. What’s the Democratic alternative?
It tough to find a lot of public discussion. My read is, and this could be wrong and if so throw out some evidence, that Democrats are thinking that addressing the medium-term budget challenge will kick the recovery into high gear. One of the few 1-2-3 plans I’ve seen is former OMB director Peter Orzag laying out an approach to what Democrats should ideally do to get the economy started. From Sailing the Wrong Way with QE2?, October 2010:
To bolster the economy, we need a three-part shift in policy:
· more fiscal expansion (read: more stimulus) now;
· much more deficit reduction, enacted now, to take effect in two to three years; and
· an improvement in the relationship between business and government (the current antagonism, even if not the primary explanation for slow hiring and sluggish investment, does seem to be affecting hiring and other business behavior).
And I think this has been the Democrats’ approach. More fiscal expansion as a result of the December compromise over the Bush tax cuts – keep them all in place in exchange for keeping unemployment benefits in place, an additional payroll tax cut (what I described at the time as moderate GOP stimulus) and a few other important programs.
Second step (though third listed) would be to work to stop the “antagonism” by bringing in people to cool relationships between the White House and industry, like Daley, which works with Obama’s move to the center this year. And the third step is to get serious about the medium term deficit, getting reductions enacted as quickly as possible that starts cutting in two to three years. The first two have been accomplished through the mechanisms we just described, and that third step of deficit reduction is all that is left.
As a fun aside, here’s how Orzag made the case to be against QE2 and other unorthodox monetary policy:
Ironically, QE2 could make the right policy mix less likely. In particular, any substantial additional stimulus will probably not (and should not) be enacted without a medium-term deficit reduction package — and that medium-term deficit reduction package is less likely to be enacted when interest rates on long-term government bonds are so low.
In other words, by perpetuating an artificially low 10-year government bond rate, the Fed may be delaying (even if very modestly, given the modest impact of the action on long rates) the very fiscal policy action that the nation most needs, while doing little to boost an economy whose principal problem is not high long-term interest rates.
Orzag thinks that QE2 and other monetary games distracts us from the real solution – getting the deficit in check ASAP.
It certainly seems to me that these are the ideas generating the current discussion for Democratic circles. However the situation has changed, and they need to be rediscussed immediately. The stimulus wasn’t enough to keep the economy going. The whole business confidence thing is completely dubious. QE2 still has ammunition in the gun and cutting deficits too quickly are likely to sink a fragile recovery. We aren’t even projected to be at full employment for several more years.
But that’s my read. What do you think the Democrats are thinking on jobs?