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Enter the austerity trap and kiss jobs goodbye

In dysfunctional Washington, this is what passes for a major achievement: The Republicans snatch Uncle Sam and threaten to drive him over the cliff. In response, President Barack Obama agrees to pay a historic ransom. To please the hostage takers, he ushers in a new era of fiscal austerity that will make it virtually impossible for the government to address what Americans want most. • Namely, jobs. • On Tuesday, while hailing the convoluted deal that allows America to keep paying its bills and avoid deadbeat status, Obama briefly mentioned the issue. Down in the seventh paragraph of his prepared remarks, he said he would "continue also to fight" for "new jobs." That was something, at least. When the deal was first announced, the White House fact sheet said virtually nothing about job creation. The House Republicans' seven-page deal document said nothing.

No surprise there. Because you can't exactly stimulate job growth if you're slashing $3 trillion in federal spending, essentially removing all of that money from the economy. Obama, having weathered the ginned-up debt ceiling crisis, is again declaring that he wants to "put America back to work," but those words are hollow. He's handcuffed by this deal. He and the Democrats won't have the money to launch any big job-creation programs even if they muster the will to try.

Of course, that's precisely what the Republicans intended — to starve the government. Most Americans probably don't agree with that strategy, but since when do they have a say? Polls suggest they just want to get back to work, by any means possible. Last month, when Gallup asked people to name their most important issue, 31 percent cited the "economy in general"; 27 percent cited "unemployment/jobs." A distant third, at 16 percent, was "federal budget deficit/debt."

This is a time when the jobs crisis requires more government spending, not less. Consumers won't prime the economic pump, because they're still in a fetal position. Private businesses won't hire, because they're still playing it safe. There's a myth going around — brought to you by the same people who deny climate change — that the 2009 stimulus was a failure. Congressional Budget Office and Commerce Department figures say otherwise; the stimulus plan saved millions of jobs and would have created more had it been bigger.

Absent this kind of emergency help, thanks to the debt deal's austerity ethos, we're now heading toward a repeat of 1937. Some bad things happened in 1937. The Hindenburg airship exploded over New Jersey, and FDR's New Deal sputtered and stalled.

Economic historians have recounted 1937 in great detail. After four years of priming the pump with government spending — and shrinking the jobless rate from 25 percent in 1933 to 14 percent — Roosevelt heeded conservative advice and went into austerity mode. He slashed spending and tried to balance the budget. The result? Unemployment spiked to 19 percent. End of experiment. FDR sought and received new spending in 1938, and the jobless rate subsequently dropped to 14 percent.

Republicans have tried to dismiss all this empirical evidence by insisting that the New Deal was an epic failure, that government spending didn't help the Depression economy (and by implication, that such spending can't help ours). This bid to rewrite history has sometimes bordered on the comical — such as when Michael Steele, then the GOP chairman, stated in 2009 that not only did the New Deal fail to create jobs but that "not in the history of mankind has the government ever created a job."

He might as well have said the Earth is flat. The truth is, FDR's stimulus programs created 15 million jobs.

For instance: The Works Progress Administration put 8 million people to work. (You have surely driven on roads and flown from airports built by WPA workers.) The Civilian Conservation Corps hired 2.7 million. The Civil Works Administration employed 4 million. The Public Works Administration created jobs for hundreds of thousands. And not so coincidentally, the Dow Jones average rose roughly 400 percent between 1933 and 1937.

But the current obsession with red ink — with slashing spending at a time when 26 million idled and underemployed Americans badly need help — ensures that Obama's job creation efforts will remain largely rhetorical. This is great for the Republicans, because persistent joblessness will make Obama an easier target in 2012. It's not so great for the jobless.

Back in 1936, when the New Deal was being assailed by conservatives, Roosevelt declared: "Better the occasional faults of a government that lives in a spirit of charity than the consistent omissions of a government frozen in the ice of its own indifference." Lamentably, we now seem poised to enter an ice age.

© 2011 Philadelphia Inquirer

Enter the austerity trap and kiss jobs goodbye 08/06/11 [Last modified: Saturday, August 6, 2011 5:31am]

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