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Right Response to Unemployment Is Smart Stimulus Spending

The new unemployment figures are damned disappointing -- from a social, economic and political standpoint.

The official jobless rate rose from 9.5 percent to 9.6 percent in august. That’s a modest increase, but the trajectory is in precisely the wrong direction for a country that fears a double-dip recession – not to mention an Obama White House that fears a big dip in Democratic majorities in the House and Senate after an election that is now just two months away.
 
The president says that there is "positive news" to be found in the fact that private sector employers created 67,000 new jobs. But that spin is not going to get very far at a point when the country must create twice that many jobs each month just to keep up with growth in the number of Americans who are entering the workforce.
 
And that does not begin to address the challenges posed by underemployment – Americ ans who have jobs but who can’t get enough hours or sufficient pay to support their families – and the growing number of long-term unemployed Americans who have given up looking for jobs.
 
An honest assessment of the real unemployment rate – taking in the underemployed and the long-term unemployed – takes the jobless figure closer to 17 percent, according to Department of Labor statistics.
 
So, while the president may want to concentrate on the “green shoots” of “positive news,” Obama is closer to the mark when he says the recovery that he promised would be robust by now is “not good enough." 
 
Why?
 
The federal government has spent a lot of money for the purposes of avoiding a Depression and easing a recession. But it has not spent that money well or wisely.
 
Bailing out big banks, as the federal government continues to do, may help Wall Street. But it does not create jobs on Main Street. In fact, big banks and investors have for many years been more inclined to lend money to companies that promise to move jobs overseas than to create them at home – witness the pattern with regard to manufacturing-sector stocks, which rise in value when CEOs announce the shuttering of U.S. factories and the shifting of jobs overseas.
 
Bailing out multinational corporations is just as bad a project, as those corporations use the money to move jobs out of the country. Witness the moves made by GM and Chrysler, which took more than $50 billion in bailout money and used it to shut factories in the U.S. and lay off tens of thousands of auto workers and mechanics.
 
Bailing out the rich doesn’t work either. The so-called economic stimulus plan of 2009 was weighted heavily toward tax policy shifts that helped those Americans who were wealthy enough to worry about the alternative minimum tax. Like the Bush-era tax cuts for the super-rich, these trickle-down approaches are proven losers when it comes to job creation.
 
The stimulus money that went to job creation – less than half the total – may well have averted significantly higher unemployment. But it was not sufficient to move the numbers in the right direction.
 
Why? Laura Tyson, the chair of the Council of Economic Advisers and the National Economic Council in the Clinton administration and a member of President Obama’s Economic Recovery Advisory Board, is right when she says that “there is now a substantial gap between the supply of goods and services the economy is capable of producing and the demand for them. This gap is starkly reflected by the 23 million Americans who are looking for full-time jobs and the millions more who have left the labor force because they could not find one.”
 
What to do?
 
Tyson makes the case for a smarter and more focused investment in America, arguing that:
 
Two forms of spending with the biggest and quickest bang for the buck are unemployment benefits and aid to state governments. The federal government should pledge generous financing increases for both programs through 2011.
 
Federal aid to the states is especially important because they finance education. Although the jobs crisis is primarily a crisis of demand, it also reflects a mismatch between the education of the work force and the education required for jobs in today’s economy. Consider how the unemployment rate varies by education level: it’s more than 14 percent for those without a high school degree, under 10 percent for those with one, only about 5 percent for those with a college degree and even lower for those with advanced degrees. The supply of college graduates is not keeping pace with demand. Therefore, more investment in education could reduce both the cyclical unemployment rate, as more Americans stay in school, and the structural unemployment rate, as they graduate into the job market.
 
An increase in government investment in roads, airports and other kinds of public infrastructure would be cost-effective, too, as measured by the number of jobs created per dollar of spending. And it would help reduce the road congestion, airport delays and freight bottlenecks that reduce productivity and make the United States a less attractive place to do business. The American Society of Civil Engineers has identified more than $2.2 trillion in public infrastructure needs nationwide, and a 2008 study by the Congressional Budget Office found that, on strict cost-benefit grounds, it would make sense to increase annual spending on transportation projects alone by 74 percent.
 
Over the next five years, the federal government should work with state and local governments and the private sector to finance $1 trillion worth of additional investment in infrastructure. It should extend the Build America Bonds stimulus program, which in the past year has helped states finance $120 billion in infrastructure improvement.  

 
There is no reasonable argument against investing in infrastructure projects that actually put Americans back to work and that move money into local economies. Indeed, as Tyson notes, “Under (the current) circumstances, the economic case for additional government spending and tax relief is compelling.”
 
“ Sadly,” she adds in a recent New York Times op-ed, “polls indicate that the political case is not.”
 
That’s where leadership comes in.

President Obama has indicated that he will propose new stimulus measures next week. That's good news.

But the president has pulled his punches in the past. He needs to do a lot more than advance cautious proposals. He must get in front of the debate and start talking about the benefits that come from investing in American job growth -- as opposed to mumbling while the right screams about "big government."
 
And congressional Democrats are going to need some prodding.
 
Local officials around the country are must speak up, especially those who are on the frontlines in cities, counties and states where smart federal investments can be put to immediate use.
 
Madison, Wisconsin, Mayor Dave Cieslewicz, the organizer and key player in the national New Cities Project, has  the right response for those who argue against additional stimulus spending on the “grounds” that it puts the nation deeper in debt.
 
“There is an estimated $2.2 trillion in deferred infrastructure maintenance left to do in America.,” says Cieslewicz. “So, let's keep putting America to work. After all, tackling all that infrastructure need isn't putting us in debt at all. It's simply catching up on work that would need to be done anyway in the future. We're not putting our children deeper in debt; we're making investments now so they won't have to later on.”

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