Four years into the economic recovery unemployment remains stuck above 7% even after the federal government spent almost $800 billion on an economic stimulus program and the Fed purchased more than $3 trillion worth of Treasuries and mortgage-backed securities.
On the plus side, the unemployment rate at 7.6% is well below the 10.2% peak reached in October 2009 , and payroll growth has been expanding, averaging 182,000 over the past 12 months through June, following job losses throughout 2008, 2009 and early 2010.
But at that rate it would take about five years for the jobless rate to revert back to pre-recession levels, according to the Economic Policy Institute.
Clearly something has to be done to revive the economy. Robert Kuttner, author of the new book, Debtors' Prison: The Politics of Austerity Versus Possibility, and co-editor of “The American Prospect," says the solution lies in more government stimulus, not less, as the champions of austerity would have.
“Let me take you back to 1940,” he tells The Daily Ticker. “The economy was growing but the unemployment rate was stuck above 12% and along came Pearl Harbor. And as a consequence of that we got the greatest unintended recovery of all time.”
Kuttner is not advocating that the U.S. go to war but create a new stimulus program instead. It “would work even better” as an economic boost than war, says Kuttner, because “we wouldn’t be blowing half of it up.” He suggests the funds be used to build “basic public infrastructure” and provide aid to state and local governments.
“The American Society of Civil Engineers says we have a $2.4 trillion deficit in basic public infrastructure. That’s roads, bridges, sewers, water systems, “ says Kuttner. Another $1 trillion-plus would be needed if smart grid, green energy initiatives , and infrastructure to protect coastal areas were included, says Kuttner.
Economists and politicians often favor infrastructure projects that are “shovel ready,” meaning they’re past the planning stage and ready to hire workers. But even better than shovel-ready projects, says Kuttner, is aid to state and local governments “so you don’t lay off people and cut programs that already exist.”
State, local and federal governments laid off more than 800,000 during the economic recovery, according to Fed Chairman Ben Bernanke. In testimony to a congressional committee in May he compared those lost jobs to the more than 500,000 government jobs created after the 2000-2001.
‘This is the only economic slump in nearly a century where the government shed jobs rather than adding them to offset private sector cuts,” Kuttner writes in his book.
Kuttner also favors a mortgage relief program hosted by the Fed.
But wouldn’t more Fed spending and government stimulus create a bigger deficit, pushing inflation and interest rates higher? No, says Kuttner, again returning to history’s example in WWII.
“Rates stayed low. The Fed monetized the debt. It worked perfectly well.” But he admits one reason it went well was because regulations made it difficult for Wall Street to speculate. Now, he says, “You need to have some re-regulation so that Wall Street cases to be a speculative casino and starts to finance the real economy.” If only…Watch the video above to learn what's possible for future growth.
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