More Reflections on Jobs--Part Two

Stan Duncan...

In June, the quarterly unemployment figures came out and unsurprisingly, they reached 9.5 percent. That’s about 30.2 million people. And if one of our tasks as people of faith is still to alleviate hunger and poverty (something that at least touches the lips of our churches on occasion), then we should be concerned about that.

The problem is that the president's $787 billion stimulus package was weighted heavily toward Wall Street bailouts rather than job creation, and that means those numbers will not go down any time soon. It isn't partisan to state that the president stripped off most of the job-creation portions of the package in order to win over Republicans who said they would support it if he did so, and now he's being criticized by those hundreds of Republicans (who didn't support it) because it isn't creating any jobs.

Many economists are beginning to warn us that this is becoming a "jobless recovery," and with good reason. Joseph Stiglitz, Robert Kuttner, Dani Rodrik, Dean Baker, Paul Krugman, and other progressive economists have all come out in favor of a second stimulus. Krugman has launched a mini media blitz to call attention to the need for one, one that would have some actual stimulus in it for job creation rather than Wall Street recapitalization. "There were not a whole lot of voices at least in the public eye saying what a lot of economists had concluded,” he told ABC News recently, “which was that the Obama stimulus plan was, if anything, too small."[1]

It's hard to argue with him. Here are some of the numbers. The total official stimulus so far has reached about $5.5 trillion dollars, which includes both Congress's $787 hundred billion, and the Federal Reserve’s private roughly $4 trillion offering. When everything the Federal Reserve has pledged for present and future bailouts is totaled, their portion comes to about a staggering $24 trillion.[2] Now, some of that money will be loan guarantees or investments, so not all of it will be actually spent, so let's give them the benefit of the doubt and say that of their present and promised money, only $15 trillion will actually be spent, but that's still a chunk of change. The point, however, is that none of the Federal Reserve spending is targeted to a roads program in Omaha or a community revitalization program in Birmingham. All of it is targeted to bail out, one way or the other, the financial titans that brought the entire planet to the brink of complete, utter disaster.

The official government bailout package is not much better. Because of the deal to win over Republican votes, only about a third of the $787 billion goes to "Joe the Plumber" in Iowa. The rest goes to Jack the Ripper on Wall Street. It wasn't designed to stimulate the economy on the ground as the vast majority of economists had suggested and expected; it was designed to stabilize the giant investment firms on Wall Street, in the hopes that eventually some of that stabilization would trickle down to you and me. However, that is not a formula that will keep your brother-in-law from moving into your garage this summer because they foreclosed on his house.

Obama’s stated goal for the plan was to "save or create" 3.5 million jobs by 2011. However, even if he actually pulled that off (and nobody believes it will), that would come to fewer than one third of all the jobs that have been lost since the recession began in December 2007, and it is about 12 percent of the workers who were already jobless. Manufacturing lost 13 percent of its workforce during that period of time. Back in the fall of 2008, when we were on the verge of fulfilling Chicken Little's prophesy that the sky was indeed going to fall, there was huge support for a major stimulus package. But that was when it was being described as an economic "stimulus" package, not a Wall Street "bailout" package. It's not surprising that a lot of that support is beginning to erode today. My assessment is the eroding of public support will continue for some time because the package is simply not constructed to create do much to help "normal" people. Jobs will lag behind for a long, long, time until Wall Street can finally propel its own motors with its own fuel, and finally pull the rest of us along.

Don’t get me wrong. I think that Wall Street needed to be bailed out. Money does trickle down, and it is necessary to have great financial houses (poorly performers though they are) to allocate capital and manage risk. We couldn't survive without them. But it is incontrovertibly true that the bias of the money was to rescue the bankers who destroyed homes and families and not to the homes and families they destroyed. A better balance could have been made and it could have been far more humane, or (as Krugman and others are beginning to call for) a bigger pie out of which the jobs programs slice could have been taken.

The economic principles underlying the need for a stimulus package, in case you've forgotten, was that for about a decade the economy had been expanding too rapidly, based on money that wasn't really there (borrowed money, leveraged money, fake money, etc.). Think of the old shell game where you keep sliding the one pea around underneath six shells to make the viewer believe that there were six peas instead of one very fast moving one. When the true number of peas was discovered (that is, that the economy was worth four trillion and not twelve trillion) buying and selling suddenly shrank down to meet the number of peas we actually owned. But then the rest of us started cutting back on buying things even further than necessary, just to be safe, and the economy nearly collapsed altogether. The theory behind the stimulus package was that when money is drained from the market like this, it has to be replaced from somewhere else to keep the market from ceasing to function altogether. If that happened, it would be a global disaster beyond what anyone could imagine. It would be the equivalent of "crossing the streams" in Ghost Busters. Or, as Egon Spengler put it, "Try to imagine all life as you know it stopping instantaneously and every molecule in your body exploding at the speed of light…That would be bad." In order to prevent this "total protonic reversal" from happening, the government, at least in the short run, should step in and literally replace all of the missing money in the market with its own money to keep the machinery of the economy functioning, until eventually people get comfortable about spending some of their own money and they start replacing the government money.

It's a little like when Jesus tried to feed the five thousand. More than likely, most people in the crowd actually had a couple of sandwiches and a thermos of coffee that they were hiding under their cloak or had forgotten to check at the gate when they came in, but they were nervous about bringing it out, because they were afraid it wasn't enough to go around for everyone. So they hoarded it for their own consumption. But when Jesus took up the slack and started distributing food through out the crowd, some people thought that the shortage was over and they brought out what they had and spread a little of it around, which influenced the next guy, and the next guy until eventually they looked up and realized there really hadn't been a shortage of food after all, just a shortage of trust. And all got a little bit to eat.

And that's what the government tried to do with the stimulus package, except that so far they have spent far more on replacing the money that Wall Street was claiming was underneath its shells than replacing the salary that the grunt on the ground was using to buy food.


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