We now live in parallel universes.
One universe is the one in which most Americans live. In it, almost
15 million people are unemployed, wages are declining (adjusted for
inflation), and home values are still falling. The unsurprising result
is consumers aren't buying -- which is causing employers to slow down
their hiring and in many cases lay off more of their workers. In this
universe, we're locked in a vicious economic cycle that's getting
The other universe is the one in which Washington politicians live.
They are now engaged in a bitter partisan battle over how, and by how
much, to reduce the federal budget deficit in order to buy enough votes
to lift the debt ceiling.
The two universes have nothing whatever to do with one another --
except for one thing. If consumers can't and won't buy, and employers
won't hire without customers, the spender of last resort must be
government. We've understood this since government spending on World War
II catapulted America out of the Great Depression -- reversing the most
vicious of vicious cycles. We've understood it in every economic
downturn since then.
The only way out of the vicious economic cycle is for government to
adopt an expansionary fiscal policy -- spending more in the short term in
order to make up for the shortfall in consumer demand. This would
create jobs, which will put money in peoples' pockets, which they'd then
spend, thereby persuading employers to do more hiring. The
consequential job growth will also help reduce the long-term ratio of
debt to GDP. It's a win-win.
This is not rocket science. And it's not difficult for government to
do this -- through a new WPA or Civilian Conservation Corps, an
infrastructure bank, tax incentives for employers to hire, a two-year
payroll tax holiday on the first $20K of income, and partial
unemployment benefits for those who have lost part-time jobs.
Yet the parallel universe called Washington is moving in exactly the
opposite direction. Republicans are proposing to cut the budget deficit
this year and next, which will result in more job losses. And Democrats,
from the President on down, seem unable or unwilling to present a bold
jobs plan to reverse the vicious cycle of unemployment. Instead, they're
busily playing "I can cut the deficit more than you" -- trying to hold
their Democratic base by calling for $1 of tax increases (mostly on the
wealthy) for every $3 of spending cuts.
All of this is making the vicious economic cycle worse -- and creating a vicious political cycle to accompany it.
As more and more Americans lose faith that their government can do
anything to bring back jobs and wages, they are becoming more
susceptible to the Republican's oft-repeated lie that the problem is
government -- that if we shrink government, jobs will return, wages will
rise, and it will be morning in America again. And as Democrats, from
the President on down, refuse to talk about jobs and wages, but instead
play the deficit-reduction game, they give even more legitimacy to this
lie and more momentum to this vicious political cycle.
The parallel universes are about to crash, and average Americans will be all the worse for it.