What Would Laura Tyson Do If She Were NEC Chair?
Rebutted by Laura Tyson:
The US economy has just marked two years of recovery from its worst recession since the Great Depression. But few Americans are celebrating; indeed, most believe that the economy is still in recession.... According to calculations by the Hamilton Project, the US will face a “jobs gap” of about 21m jobs.... The jobless recovery is also a wageless recovery for most Americans.... Real median household income in 2009 was 4 per cent lower than its pre-recession high and about the same as it was in 1997....
It is not surprising that many Americans are pessimistic about their economic future. Nor is it surprising that they think jobs should be the top priority for policymakers. They are right. Unfortunately, many members of Congress are not listening. Urged on by Tea Party Republicans interested more in the size of government than the size of the government’s debt, the debate in Washington is focused on deficit reduction rather than on job creation. It is true that the US faces a major fiscal challenge that must be addressed. But this is a long-run challenge... primarily the result of rising healthcare costs, the ageing of the population and unwise [Republican and Bush] fiscal choices.... The short-run challenge is inadequate demand – a gap between the amount of goods and services the economy can produce and the demand for them, caused mainly by the private-sector deleveraging. The long-run challenge calls for fiscal contraction. The short-run challenge calls for fiscal support.
There is a logical way out of this policy conundrum: pair temporary fiscal measures targeted at job creation during the next few years with a multiyear, multitrillion-dollar deficit reduction plan.... [I]magine for a moment that logic prevails. What should the federal government...?... [I]ntroduce additional stimulus measures to offset the substantial fiscal drag – in excess of 2 per cent of GDP... invest more in infrastructure maintenance and replacement.... Each $1bn of infrastructure investment creates between 11,000 and 30,000 jobs. On the revenue side, the government should extend some of the targeted tax measures enacted at the end of last year... the payroll tax cut for employees and the capital investment expense deduction... cut payroll taxes for employers on all new hires.... This cut should be linked to the unemployment rate and should be maintained until it falls to the 5-6 per cent range....
For many Americans, the first decade of the 21st century was a lost decade for the economy. A second lost decade has already begun. No wonder they think the economy is still in recession – for them, it is.
