It’s Still The Economy Stupid

by Stuart Shapiro

More specifically, it’s still jobs, stupid.  While the Bin Laden capture and the tumult in the Middle East has rightly seized headlines, we are still clawing our way out of a recession, and our ability to do so will impact our ability to maintain our world leadership and, of course, dramatically affect the presidential election next year.  Ezra Klein points out the benefits of focusing on jobs for the economy and for the deficit.

The jobs crisis is vastly more pressing than our debt problems, but it’s also, in two mostly unnoticed ways, interconnected. For one thing, a weak labor market means a high deficit. It means tax revenues come in low and social spending needs to be high. It’s very hard to begin deficit reduction in any serious way before unemployment comes down.Which means that the sooner we get unemployment under control, the sooner sustained deficit reduction can really begin.

But second, and perhaps more importantly for deficit hawks, the jobs crisis is leverage for deficit reduction. A little bit of stimulus could buy you a lot of deficit reduction. Imagine if Republicans offered Democrats a 4:1:1 deal: For every $4 of specific spending cuts over the next 12 years, they’d back $1 of tax increases and $1 of stimulus. A deficit-reduction deal that cut $3 trillion would carry $1 trillion in tax increases — so, $4 trillion in total deficit reduction — and $1 trillion in stimulus. Who’s the liberal who’d say no? And yet, that’s a big deficit reduction package. Among the biggest in our history, actually.

Hee also mentions that the GOP majority is, unfortunately, not interested in reducing unemployment.  As Yashwanth and I have both posted, the Republicans have focused on social hot button issues to distract voters and the chimera of deficit reduction to pretend they care about the economy.  So, if they really want to fix the deficit, let’s fix unemployment.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.