Warning: There will be a lot of links in the post below. I am going for the “full Greenwald.”
On Friday evening, my wife asked me what I was planning on doing this weekend. My reply was “As little as possible.” These days it seems like that is exactly what the GOP has planned to do with existing budget deficits and the unemployment that will handicap the United States for the foreseeable future.
The big upcoming budget fight for the rest of this year, and probably into the next Congress, will be whether, or to what extent, the “Bush tax cuts” ought to be extended. Good estimates from the Committee for a Responsible Federal Budget find that a full extension of the tax cuts will add $3.28 trillion to cumulative deficits between 2011 and 2018. Alternate proposals would include allowing the tax cuts to expire only for those Americans earning more than $250,000 per year but extending them for those making less than that. As pointed out this morning by William Gale in the Washington Post, the Bush tax cuts are estimated to account for approximately 25% of the budget deficit this year. That is not a majority, nor likely even a plurality of the budget deficit. Other large line items contributing to the deficit include the TARP and Recovery Act measures (one-time expenses), and the wars in Iraq and Afghanistan (which will supposedly end sometime in the next ten-year budget window, but who knows?). These are all on the side of tax expenditures, while the revenue side has certainly been reduced by the reduced taxable income and assets caused by the recession itself. Allowing all tax cuts to expire would have a more helpful effect on the immediate and long-term budget deficit; however, a large portion of the work can be done by allowing higher-income earners to bear the brunt of the increases. Moreover, since the GOP wants to pretend that nothing was wrong with the Bush tax cuts in the first place, allowing any tax cuts to expire will be difficult politically. Allowing all of them to expire, particularly in a time fraught with middle-class anxiety, is next to impossible, even if it was desirable.
While swallowing this deficit camel (Note: The idea that tax cuts “pay for themselves” or that they have a stimulative effect far in excess of their ultimate cost to the deficit, I find to be laughable. At least four prominent conservative economists (as well as just about everybody else who knows anything about the problem), agree with me.), the GOP simultaneously strains at the gnat of additional stimulus (particularly in the form of extended unemployment benefits). Unemployment benefits, extended even to periods of several years, are not threats to the long-term deficit. Quite to the contrary, they are among the most effective forms of direct stimulus, as those without jobs are likely to spend nearly every dime they receive as unemployment benefits on basic necessities. Even if unemployment benefits were a form of pure deficit spending, without any correlating stimulative effect, they would be the right thing to do, as I will explain shortly. But to insist that a $3 trillion tax expenditure is no problem, while filibustering an extension of unemployment benefits with a cost of $33 billion smacks of a profound lack of seriousness about dealing with deficits.
The extension of unemployment benefits would be a priority of the second order if it were reasonably anticipated that prospects for employment were to improve rapidly in the short- to medium-term. Such is emphatically NOT the case. Estimates range anywhere from 5 to 11 years to restore employment to pre-recession levels. While the long-term deficit is no doubt a ticking time bomb that will need to be tackled with some tough and courageous policies over the next decade and into the future, persistent high unemployment is a crisis RIGHT NOW and into the future. More (and more targeted) short-term stimulus is one answer, with deficits being handled in the medium- to long-term. For those of us not personally associated with someone with a long-term unemployment issue, the high numbers of the unemployment can tend to blur into mere statistics. But the full cost of long-term unemployment is not something that can be appreciated solely on the basis of a GDP figure, deficit numbers, or the monthly U16 report. The true costs of unemployment are a deterioration in the nation’s stock of human capital, in the form of unrealized investments in education, training, etc. Perhaps this is most profound for youth growing up in homes where one or both parents may be suffering from long-term unemployment. Lack of savings for education and enriching experiences in one’s youth cannot be easily regained once that youth is spent. That means that the full and true cost of this recession will not be known until 15-25 years from now, when today’s youngsters are entering the workforce in full for the first time. One of the most important governmental priorities in this recession is to support education (i.e. by not forcing state budget cuts in education and teacher layoffs) and put money in the hands of families so that they can make their own investments in human capital. That is why, aside from any stimulative effect it might have, it is imperative that Congress put the extension of unemployment benefits beyond the reach of short-sighted legislative maneuvers. Ergo, unemployment benefits should be extended almost indefinitely, or at least until our unemployment figures hit a certain stable and acceptable floor (probably between 5 and 6 percent, 3% being defined as full employment). At the same time, short-term measures to forestall cuts in education expenditures and further targeted stimulus must be put in place.
There can be no recovery in the broader economy without a recovery in employment as soon as possible. Consumer spending and tax revenues will not get back to where they need to be until reliable and steady incomes can be put back into the hands of all of America’s working populace. In the meantime, the human cost of unemployment and resulting dislocations is too high to wait for the jobs to come back.