The job numbers for March of this year were somewhat impressive; 192,000 was somewhat above the monthly average of around 175,000 since the start of four straight years of uninterrupted job growth from the first quarter of 2010 until the present time. The fact that the official unemployment rate held steady at 6.7%, despite about half a million people entering the workforce in the first quarter of this year. This brings the private sector job count to over 116 million-exactly where it was in January 2008 on the eve of the current crisis. Thus, the current number of private sector jobs slightly exceed the peak at the start of the crisis. According to the Bureau of Labor Statistics (BLS), total non-farm, payroll employment as of March 2014 was nearly 138 million (137,928 to be exact) which is about where it was at the start of the crisis. This latter figure includes almost 22 million public sector employees. The point is that as of the start of the second quarter of this year, Obama has replaced nearly all the jobs lost during the crisis brought on in part by the recklessness of the Bush Administration and their absurd supply side mania on steroids! Though it is though impossible to know the true unemployment rate, the total number of non-farm, payroll employees on the job is possible. The labor force participation rate is at an historic low since 1979 though it seems to be improving.
It is surely the case that GOP obstruction is the only thing in the way of full employment. Obama's progressive given this obstruction (and the continued long term tendency of large corporations to shift jobs overseas) is impressive. Still, over 9 million people continuing to search for jobs (this is only the official figure) is too high. Another round of robust fiscal stimulus is needed to accomplish this goal. Dropping the official unemployment rate down below six percent would be a great thing in a mid-term election year whereby saving the seats of a number of progressive Democrats (or at least stopping Republican gains) is essential. The GOP will fight all the more assiduously for greater unemployment as evidenced not only by obstruction of anything resembling a jobs bill but by promoting more outsourcing of jobs overseas with proposals that any corporate profits earned over seas are not taxable by the US Federal Government! Such thing should be relentlessly resisted.
Republicans explain their opposition to stimulus with long discredited supply side arguments. Recessions are the solution not the problem, they argue, because the down cycle "corrects" the economy, eliminating high cost producers and unproductive capital stock, thus creating greater efficiency, wealth and ultimately, a better economy for all. This is absurd. It is hard to imagine how the destruction of over eight million jobs, trillions of dollars in lost equities and real estate values, the destruction of untold billions in highly productive capital stock and trillions in lost output can be the solution to anything! This makes the recession all the more egregious when it is recognized that it was the greed and financial corruption that sunk the economy in one fell swoop, not downturn brought on by inefficiency and lack of international competitiveness.
Such a theory could vaguely apply in certain cases in the past such as the 1979-82 recession in which large inefficient industries were forced into "lean production" mode in order to compete on a world scale. Of course, it wasn't just a few obsolete steel plants in the Great Lakes region that forced out of business. The entire heavy industrial base was gutted (along with the loss of over a quarter million family farms) in order to bring down double digit inflation. The strong dollar policy of Paul Volcker's Federal Reserve used high interest rates not only to suppress inflation but to financialize the US economy which destroyed industrial and farm exports in favor of attracting foreign financial capital to the US to develop its "uncompetitive" capital markets. This was the beginning of the long term decline of the US economy and the start of the chronic stagnation of American capitalism.
Supply side theory is based on Say's Law, that overproduction is impossible because supply allegedly creates its own demand and therefore the market will always reach equilibrium, at least in the long run. Keynes noted that markets never really reach equilibrium in the classic sense and almost never at rates of full employment and capacity utilization. There is just a point when the key fundamentals cease adjusting and the overall economy reaches a stasis at some random level of unemployment and overcapacity. It is at this point that recessions concentrate and centralize output, income, wealth and productive assets (often at fire sale prices due to the pressure on small businesses to meet their debt obligations and cut losses) creating greater wealth for the large corporations left standing and misery for the growing reserve army of unemployed, a condition which also suppresses wage growth. It is no wonder that big capitalists and their allies in the GOP love recessions. Such down cycles are a historic path to ever greater control of the economy by a few.
The idea that supply creates its own demand is an antiquated idea based on the ideas of Jean Baptiste Say whose thinking dates back to the late 18th century just before the dawn of industrial capitalism. In the workshop setting which was the basis of Say's thoght, a small artisan (butcher, baker or candlestick maker) would indeed only produce an item for sale to meet his cash needs for his own purchases. Hence, Say reasoned, the revenue gleaned from all small scale production would become a source of demand for everything else produced. Say, and other influential political economists of his day, like Adam Smith and David Ricardo, were theorizing about a pre-industrial era in which capitalism was characterized more by state sponsored international trade (merchantilism) than by large scale factories. In an age of what Marx called "commodity production" whereby large, highly integrated and concentrated monopoly capitalist economies are based on production by large, efficient specialized firms, Say's Law no long applies. The anarchic nature of mass production is based on the search for ever greater profit and does not perfectly equate supply with demand. Overproduction becomes the norm and with it overcapacity, a cessation of investment, recession and chronic stagnation due to a collapse of effective demand. Business cycles develop which are not self-correcting and exogenous stimulus is needed to reach a sustained upturn. In the absence of such stimulus, the system will become more recessionary and unstable as collapse, misery and economic and political polarization threaten the capitalist system itself.
Absent Keynes's policy of "demand management" we have chronic stagnation and unemployment. Conservatives are in denial about this fact, mostly for political reasons. But the explanation for late capitalism's tendency toward chronic stagnation is simple. John Bellamy Foster of the Monthly Review explains;
In...advanced capitalism, exemplified by the United States, as an economic and social order dominated by giant, monopolistic (or oligopolistic) corporations—the product of the concentration and centralization of production described by Marx in Capital. The central trait of the system was a tendency for surplus (value) to rise—a phenomenon made possible by the effective banning of genuine price competition in mature, monopolistic industries, together with continually rising productivity. Under these conditions, the main economic constraint was no longer the generation of surplus, but rather its absorption, i.e., a chronic lack of effective demand....corporations normally refrain from carrying out net investment if expected profits on new investment are weak. Such expectations are affected by the existing level of capacity utilization in industry; the presence of idle plant and equipment deters business from investing in still more capacity. Since a rising surplus tendency, moreover, generally means that real wages are rising less than productivity (i.e., workers are more exploited), wage-based consumption is chronically weak relative to society’s capacity to produce, resulting in increasing excess capacity, and the atrophy of net investment. Under monopoly capital the long-term growth trend is therefore sluggish, characterized by a wide, and even widening, underemployment gap. The economy, in other words, falls far short of its potential growth rate, with underutilization of labor and capital goods. Hence, the normal state of the monopoly capitalist economy, [economists] Baran and Sweezy argued, was stagnation or an underlying trend of slow growth.As American capitalism increasingly concentrates, effective demand tapers off and can only be supported by increased financial indebtedness (which is highly destabilizing in the long term to the overall economy and detrimental to the financial stability of households) or, the preferable alternative of massive public investment for full employment. Thus, US monopoly capitalism increasingly financializes causing massive indebtedness in order to sustain the system (and corporate profitability) and long term instability. It is well known that the more than $2 trillion in undistributed profits (profit before payments to shareholders but before taxes) corporate coffers not being invested in job creation because the US economy is to stagnant to provide an adequate rate of return to capitalists. Only a fiscal stimulus can boost employment and spending sufficiently to warrant further such investment in the US domestic economy.
Conservatives will challenge much of the unimpeachable evidence for stimulus by either saying it hasn't worked or or that conversely the US economy is regaining GDP growth and rising employment levels without stimulus "proving" that austerity is indeed working. Both statements are false. We have seen evidence of the stimulus success with rising growth and non-farm, payroll employment levels. And fiscal stimulus is a fact of life at this point; it is always present as "automatic stabilizers", the federal spending that automatically kicks in during down turns, preserves spending levels and places a floor under the economy that would exist otherwise. Economist L. Randall Wray explains why budget deficits are a good thing during recessions;
These automatic stabilizers, not the bailouts or stimulus package, are the reason why the U.S. economy has not been in a free fall comparable to that of the Great Depression. When the economy slowed, the budget automatically went into a deficit, placing a floor under aggregate demand. And in spite of all the calls to rein in deficits, the truth is that deficits will not come down until the economy begins to recover. Even if we eliminated welfare payments, Medicaid, Medicare, military spending, earmarks, Social Security payments, and all programs except for entitlements; and also stopped the stimulus injections, shut down the education department, and doubled corporate taxes, the New York Times estimates that the budget deficit would still be over $400 billion. This example further demonstrates the nondiscretionary nature of the budget deficit. And, of course, this example doesn’t consider how much more tax revenues would fall and transfer payments would rise if these cuts were actually undertaken. With the current automatic stabilizers in place, the budget cannot be balanced, and attempts to do so will only damage the real economy as incomes and employment fall.Wray also explains, as many other Keynesian economists have, that deficits not only create upturns but that most, if not all, recessions have been preceded by budgetary surpluses or at least, a fall in government spending as a share of GDP. This is precisely what occurred with the Clinton surpluses which produced the downturn of the first quarter of 2001. The collapse of the stock market bubble in 2000 and consequent drop in consumer spending was coupled with rising balance of trade deficits which constituted yet a second "leakage of demand" as it is called. When the federal government spending declined as well, that left no source of effective demand to sustain the US economy. A recession occurred between March 2001 and November of that year but the labor market recovery wouldn't occur until late 2004 after two years of the growth of a stock market and real estate bubble that allowed further wealth effect spending to sustain the economy. Similarly, despite the massive Bush deficits throughout both his terms in office, there was actually a drop in the federal deficit as a share of GDP from 3.5% in 2004 at the peak of the upturn to 1.2% in 2007 when the recession official began. This decline in federal spending as a share of GDP matched the slowdown in consumer spending all during 2007 after the deflation of the housing bubble during the previous year. The result was that spending began to decline causing a slowdown in the US economy well before the consequent financial defaults caused the 2008 crisis. In addition, the balance of trade deficit remained high. The Bush deficits were not as much of a problem as the financial chaos that followed a collapse in spending. In the case of the US, deficits are generally not a cause of economic crisis; it is economic crisis that causes deficits.
Since 2009, the increase in spending caused by the $800 billion fiscal stimulus plus the added mandatory social spending due to the recession helped sustain the growth of the US economy and allowed a recovery to take place. The stimulus worked but we now need much more. Budget deficits are currently the cause of continued unemployment and low federal taxation on the rich rather than spending. Without more spending the economy will not recover to its full potential in the foreseeable future. A recent Federal Reserve working paper observed that the US economy is about "7% below the GDP growth trajectory it appeared to be on prior to 2007." The Congressional Budget Office (CBO) has also repeatedly pointed out the damage to the growth potential to the US economy by the sequester cuts mandated by the Budget Control Act of 2011. In July of 2013, the CBO sent a memo to the Congressional Budget Committee making the following analysis;
As you requested, the Congressional Budget Office (CBO) analyzed a proposal under which the automatic spending reductions in effect for 2013 would be canceled at the beginning of August and none of the reductions scheduled for 2014 would be implemented...canceling the automatic spending reductions effective August 1 would increase outlays relative to those under current law by $14 billion in fiscal year 2013 and by $90 billion in fiscal year 2014...Those changes would increase the level of real (inflation-adjusted) gross domestic product (GDP) by 0.7 percent and increase the level of employment by 0.9 million in the third quarter of calendar year 2014 (the end of fiscal year 2014) relative to the levels projected under current law, CBO estimates...The full ranges CBO uses for those parameters suggest that, in the third quarter of calendar year 2014, real GDP could be between 0.2 percent and 1.2 percent higher, and employment 0.3 million to 1.6 million higher, under the proposal than under current law.America desperately needs a massive public investment campaign for full employment in such sectors as mass transit, including a high speed cross country passenger railway system similar to those in Europe and Japan to save energy and create jobs. We also need an energy conservation program for weatherization and alternative energy research. Fixing America's crumbling infrastructure would also create jobs and improve quality of life and public safety. Finally, we need to invest in health care and education. Such spending not only creates jobs in the short but improves the working of the economy in the long term. One study in 2008 by Robert Pollin, an economist and leading proponent of green jobs as a path to recovery, estimated that a mere $100 billion investment in alternative energy and conservation efforts would create over 1.5 million jobs in at least 34 states.
Such efforts are necessary if we are to save the economy and society from collapse. The left is in disarray and so the political efforts are lacking. The far right is determined to save the rich at the expense of society. In the end, what is essentially an economic crisis will be shown to be one that stems from political breakdown as well.