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Ben Smith: Former top economist: Economic inaction ‘shameful’: President Obama’s former top economic advisor sharply criticized the federal government for failing to take more aggressive action against unemployment...
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http://www.econ.berkeley.edu/~cromer/Vanderbilt2.pdf: Let me talk first about unemployment—because nothing is more important to the economic security of a middle class family than having a job. The bursting of the housing bubble and the financial crisis in the fall of 2008 dealt a terrible blow to the economy. The shock that hit the United States in 2008 was at least as large as that in 1929. Indeed, by one key indicator, it was much worse. The collapse of house prices and the stock market in 2008 destroyed 13 trillion dollars of household wealth. The percentage decline in wealth in 2008 was nearly seven times larger than in 1929. The result of the destruction of wealth and the financial crisis was a collapse in demand that closed factories and led to horrible job losses. The extraordinary actions taken by monetary and fiscal policymakers, both at the end of the Bush administration and when President Obama came into office, helped prevent the recession from turning into a second Great Depression. And, they have helped to put the United States on the road to recovery.
But, though the recession may be over in the technical sense that we are now growing and adding jobs again, it is clear that there is still a lot of devastation out there. The national unemployment rate is still 8.9%. Nearly 14 million Americans currently are looking for a job, but can’t find one. Unemployment remains an absolute crisis. The policy actions taken in the lame-duck session of Congress last December will be helpful. The payroll tax cut and another year of extended unemployment insurance are good policies for putting people back to work and preventing suffering. The additional business tax cuts to encourage investment are also useful for creating jobs today and making us a more productive economy over the long haul.
But we ought to be doing more. I have been a vocal proponent of the Federal Reserve using the tools it still has to do more to get the unemployment rate back down to normal more quickly. The President in his State of the Union Address called for more public investment in infrastructure, education, and innovation. That would be excellent policy to reduce unemployment, and would leave the country richer in the process.
I would also go further and give businesses a cut on their share of payroll taxes. The action last December only cut the employee side of the payroll tax. Cutting the business side would lower the cost of hiring workers and so give employers an incentive to do exactly what we need them to do.
I frankly do not understand why policymakers aren’t more worried about the genuine suffering of so many families. We have tools that we can use to bring the unemployment rate down, and I think it is shameful that we are not using them. That is the number one thing that we could and should be doing to strengthen the middle class.
And don’t tell me we can’t do it because of the deficit. We could certainly do it in a fiscally responsible way. And even if all you cared about was the deficit, dealing with the unemployment rate is good policy. The longer we let unemployment remain high, the more likely it is to stay high. This would be devastating both for the people affected and for the government budget.