The Federal Reserve attracted a lot of attention Wednesday when it declared it won’t raise interest rates until unemployment drops below 6.5% – and then only if the long-term outlook for inflation showed it might be ticking upward.
Far less media notice was given to the Fed’s economic projection, released at the same time. Looking out to the end of 2015, the central bank is projecting a continuing high unemployment rate nine full years after the recession started. This puts the US in danger of echoing Japan’s “lost decade” of the 1990s, from which it is still recovering. As Paul Krugman wrote Thursday morning, “This is an awesome failure of policy — not solely at the Fed.”
How did this happen?
It happened because Democrats allowed Republicans to capture the conversation by railing about debt and deficits – all that nonsense about “kitchen table” budgeting. But Democrats, who should know better, are even more to blame because they bought into the nonsense of the Republican Party’s sudden fascination with what can only be called “neo-Hooverism.”
Herbert Hoover may not have been responsible for the stock market crash that started the Great Depression, but he has been rightly blamed for doing nothing to stop it or reduce its spread and impact. When what the country needed was a massive program of spending by Washington to create jobs, Pres. Hoover and his advisors insisted that a balanced budget, no debt and government austerity was the only way to put “two chickens in every pot” – a Hoover campaign line in 1932.
It didn’t work and by the time Franklin Roosevelt was elected, fully one-quarter of the nation’s adult population was out of work.
People who studied the Depression seriously – folks like Ben Bernancke, as it turns out – demonstrated that Hooverism and austerity made a bad situation worse. Britain under David Cameron and much of the EU has shown how foolish this “don’t spend your way to prosperity” notion still is today.
Yet for some reason, the Republican Party has tied the economic health of the country to neo-Hooverism, a policy that has failed forever. What is even more bizarre is that otherwise intelligent people inside the beltway – in politics, at think tanks, in the media – treat the GOP as if it has a plausible idea.
The Fed’s short-term projections are a 2.3 percent growth rate. During Reagan’s presidency, which the GOP still clings to as the Golden Age of America, it was 2.7 percent. When Clinton was president, and tax rates were much higher than they are today, the economy grew at an average of 3.8 percent annually, and he started at with much lower base because by the time Bush The Elder left office, the economy was growing at an anemic one percent per year.
What is needed is the growth seen during the Truman, Kennedy and Johnson years. Under Pres. Truman, GDP grew by 4.8 percent annually and it exceeded five percent during the Kennedy-Johnson years.
Finding that kind of growth again means spending money, especially on infrastructure where the multipliers are enormous.
The infrastructure of the United States is deteriorating rapidly, and simply bringing it up par could produce millions of jobs. Work needs to be done on everything from upgrading roads and bridges to repairing the interstate system; the electrical grid is held together with spit and glue; schools need modernizing; affordable housing is in short supply; in 2012, far too many Americans lack access to broadband.
If the US spent five percent of GDP on infrastructure as most European nations do – China spends nine percent – it would budget $750-billion. Infrastructure projects create 10,000 to 18,000 jobs per billion dollars spent. Splitting the difference at 14,000 jobs, it represents 10.5-million new jobs, before the multiplier effect on the broader economy is factored in.
That Washington is fixating on debt and cliffs and calls for austerity is inexcusable. Worse, it is the fault of Democrats in Congress, Treasury and The White House.
Pres. Obama’s “let’s make a deal and all get along” attitude during the first three years of his presidency doomed us to our own version of Japan’s lost decade. It was as if the battle over the 2009 stimulus, the auto industry rescue and ACA never seeped into his consciousness until it was too late.
There are millions of Americans who are highly educated and trained, highly experienced, highly qualified and really want to work again. But a combination of Washington’s unwillingness to deal with the need for a massive jobs program, and greedy employers who want superb workers but are only willing to pay $10 an hour, has mired us in a morass of economic and emotional depression.
This has to stop, now. Democrats generally, and the President specifically, must forget trying to do deals with a party that has no interest in making one and shout from the rooftops that it’s time to spend money and put America back to work.
Democrats need to call out Republicans for their fascination with neo-Hooverism.
Follow Charley on Twitter @SuddenlyHomeles