OK. In my last post I vented about how political gridlock got us here and threatens to keep us here, but remember, this is America! We don’t lie down, throw up our hands, point our fingers, and give up! We roll up our sleeves and try to fix stuff.
So, what should we do right now? Here are some thoughts, in order of political plausibility.
—The Fed needs to step up. I know…I’ve argued there’s not a lot monetary policy can do on its own right now. My point is that interest rates are already low, investors are pretty flush with cash, and anyway, investment is the one part of GDP that’s been pretty reliably growing. Still, all that said, another round of quantitative easing is called for. After all, the FOMC themselves have been saying that if things get worse, they’ll pull that trigger. Well, things are worse.
—Do no harm. Readers of OTE know that I do not blithely play the uncertainty card. What’s held back growth and hiring in this economy is not clause #572/7 from the Affordable Care Act or the EPA or the 75 year fiscal outlook. It’s the near term demand contraction. But I’ve started citing the problem of uncertainty regarding upcoming fiscal issues and this is something Congress could quickly fix if enough of them grasped the urgency of the situation.
And it’s not just market uncertainty I’m thinking of here. There are millions of people working for government contractors who could get stung if automatic cuts hit all at once. Tax increases, along with the loss of the payroll tax break will bite paychecks that are already, on average, falling behind inflation.
That doesn’t mean we should extend all the expiring provisions—that would be worse than doing nothing at all. But if the deceleration of job growth we’ve just seen doesn’t convince these folks to put aside their differences and compromise on behalf of working Americans, then they’ve got no business being here.
—Keep extended UI going: Extended Unemployment Insurance benefits are just about as necessary as ever, yet the extended benefits program is actively winding down across the nation, as my CBPP colleague Hannah Shaw shows here. Yet, 5.4 million jobless folks—43% of the unemployed–have been out of work for at least half a year, and, as shown in the figure, that share hasn’t come down much at all.
And since the unemployed…um…don’t have jobs, they tend to spend these benefits generating useful multiplier effects.
–Enact fiscal stimulus: Finally, and almost certainly leaving the realm of political reality, measures like state/local fiscal relief and FAST! would help a lot right now.
Now, let’s say the Fed acts, which as I said, would be good but not enough. And let’s say UI and more stimulus are off the table.
That leaves “do no harm” and that strikes me as perhaps, maybe, I-doubt-it-but-who-knows possible. I suspect it would actually help the economy in no small way if Congress said to America:
“We disagree on many fundamental points about the role and size of government. But one thing on which we stand shoulder-to-shoulder is that the American people should not have to suffer because of our disagreements.
We face today a number of fiscal issues that must be resolved in coming months and given what we just learned today about the job market, we’ve decided to take one big set of worries off the table.
By working together and compromising, we’ve come to an agreement that avoids the fiscal cliff and lifts the debt ceiling today. We didn’t fix everything forever—we’ll need to revisit these tough issues in coming months. But despite our inherent differences, there’s no way we’re going to inflict any more wounds on this economy at a time like this.”
I can dream, can’t I?