Solving the Wrong Problem

There is a reason there’s that quote on the top of this page in the masthead, that one from G. K. Chesterton about how it isn’t that folks, worried sick about this or that, can’t see the solution to the problem at hand, it’s that they can’t see the actual problem. That happens all the time. We want solutions to a pressing problem and there is always much to consider. Did Saddam Hussein attack the World Trade Center? Did the Obama healthcare reform bill call for “death panels” for Granny? Is man-made global climate change the real things or just a hoax and nothing more than a purposeful conspiracy of scientists seeking greater funding? Do tax cuts for millionaires and billionaires really pay for themselves?

Eric Alterman calls such stuff ideologically motivated misinformation – those with agendas do plant ideas to serve their purposes – but a lot of it is just natural confusion. Something is terribly wrong, there’s too much or too little information, there’s no time for root-cause analysis – and you really don’t want to do that root-cause analysis because you’re a bit afraid of what you’ll find and have to explain – so you wing it and offer solutions. The joke has always been that the Republican solution to any problem of any sort – floods, fires, hurricanes or earthquakes, or terrorist attacks in Altoona – is always the same. Eliminate capital gains taxes. Yeah, yeah – and every adult male knows the guy who says there is not a thing that cannot be fixed with duct tape and Vise Grip pliers. One thinks of the Project for the New American Century neoconservative crowd – there is no problem that cannot be fixed by massive military action – invasion and occupation, occupation until they love us, damn it. But the duct tape and Vise Grips didn’t work out all that well in Iraq. It was a case of not really seeing the problem. It always is.

So of course we often seem to find ourselves solving the wrong problem. Saddam Hussein was a nasty guy and it is fine that he’s gone, but he wasn’t the actual problem. There we got the solution, followed by six or seven years of the Bush administration trying to explain what the actual problem had been. And when one explanation of the problem fell apart they’d just move one to the next explanation, until no one really cared anymore. We did what we did. Maybe it solved something. Maybe it didn’t. But what’s done is done. Move on.

And now we’re at it again. The economy stinks, and it’s not getting better, or only slowly getting better, with far more than fourteen million unemployed, and we are told we have a deficit crisis. We need to stop spending and pretty much shut down the government, and stop borrowing, and maybe default on what we owe from all previous borrowing, because… well, because one day this will ruin us. Medicare will be out of money in twenty years, and Social Security in forty years and at some point there will be hell to pay, one day. Those who are unemployed and those who are losing their homes might be puzzled. There are more immediate problems. Something is terribly wrong, but there’s too much or too little information, and there’s no time for root-cause analysis, so maybe that’s the problem – the government is running up bills and borrowing money. People shrug. Macroeconomics is confusing.

But there are the new unemployment numbers and the New York Times’ David Leonhardt offers these metrics to evaluate the monthly job totals – if May showed gains above 250,000, it’d be “very good” and if the totals were above 200,000, it’d be “relatively good” – and above 150,000 could be seen as “coulda been worse” while 50,000 would mean “2010 redux” – and that was what we got.

In the first four months of 2010 there was steady and encouraging growth in the job market – this looked good. Optimism was high. Then May came and the job market collapsed. And this year is starting to look exactly the same, with four months of increasingly strong numbers, followed by a whammy in May:

The Labor Department reported on Friday that the United States added 54,000 nonfarm payroll jobs last month, following an increase of 232,000 jobs in April. The unemployment rate rose to 9.1 percent from 9.0 percent in April.

While any job gains at all are welcome, the pace of job growth thus far has been too slow to reverse much of the damage wrought by the Great Recession, which has left more than 13 million unemployed workers in its wake. For the last few months economists had been predicting that the economy was finally gathering steam and that a sharper bounce-back was imminent, only to be disappointed again and again.

The lackluster employment figures for May, as in months past, are largely attributed to temporary factors – like the automotive supply chain disruption caused by the Japanese earthquake and tsunami, and the severe tornadoes that shuttered businesses in the Midwest.

Economists are hopeful that as these troubles pass, a robust recovery will finally burrow out from beneath the rubble.

As usual, the public sector is dragging down the larger total – 83,000 private sector jobs were created in May and 29,000 jobs were lost in the public sector at the same time, all due to to budget cuts at the state and local level. And Steve Benen comments:

Any sane person should look at these numbers and conclude that the economy desperately needs a boost. Instead, the only topic of discussion allowed in Washington is about debt reduction – which takes money out of the economy and makes unemployment worse.

It seems someone is working on the wrong problem. We have a jobs crisis, not a debt crisis. But the two are oddly connected, and a month earlier Ezra Klein had explained that:

The jobs crisis is vastly more pressing than our debt problems, but it’s also, in two mostly unnoticed ways, interconnected. For one thing, a weak labor market means a high deficit. It means tax revenues come in low and social spending needs to be high. It’s very hard to begin deficit reduction in any serious way before unemployment comes down. Which means that the sooner we get unemployment under control, the sooner sustained deficit reduction can really begin.

That means we’ve been going about this backwards:

But second, and perhaps more importantly for deficit hawks, the jobs crisis is leverage for deficit reduction. A little bit of stimulus could buy you a lot of deficit reduction. Imagine if Republicans offered Democrats a 4:1:1 deal: For every $4 of specific spending cuts over the next 12 years, they’d back $1 of tax increases and $1 of stimulus. A deficit-reduction deal that cut $3 trillion would carry $1 trillion in tax increases – so, $4 trillion in total deficit reduction – and $1 trillion in stimulus. Who’s the liberal who’d say no? And yet, that’s a big deficit reduction package. Among the biggest in our history, actually.

Benen argues this could be the basis for a real grand bargain:

We have a short-term economic problem (high unemployment and sluggish growth) and a long-term fiscal problem (large deficits and growing Medicare costs). Policymakers could, in theory, use this dynamic to strike a credible deal – Dems would get stimulus now to boost the economy and create jobs, and Republicans, in exchange, would get a deficit-reduction agenda for the coming years.

Fareed Zakaria talked up this approach nearly a year ago, calling it even then a “grand bargain.” Ezra thinks the left would go for this, and I agree. In fact, I suspect the White House would accept this in a heartbeat. And even fiscal conservatives should be able to appreciate the fact that the surest way to cut the deficit in a hurry is to grow the economy and put more Americans back to work.

Putting people back to work would fix the deficit? That’s odd. But David Leonhardt had already explained that is how things have worked in the past:

We look back on the late 1990s as a rare time when the federal government ran budget surpluses. We tend to forget that those surpluses came as a surprise to almost everybody. As late as 1998, the Congressional Budget Office was predicting a deficit for 1999. In fact, Washington ran its biggest surplus in five decades.

What happened? Above all, economic growth. And that may be a big part of the answer to our current problems.

Yes, the government became more fiscally conservative in the 1990s. Both President George H. W. Bush (who doesn’t get enough credit) and President Bill Clinton, working with Congress, raised taxes to attack the 1980s deficits.

But those tax increases were the second most important reason for the surpluses that followed. The most important was the fact that the economy grew more rapidly than expected. The faster growth pushed up incomes and caused more tax revenue to flow into the Treasury.

The lesson is that the more the economy improves, the lower the deficit will be – without slashing spending. And Benen adds this:

Indeed, perhaps the most astounding aspect of Republican rhetoric on the economy lately is how contradictory it is. On the one hand, a top GOP goal is, at least in theory, deficit reduction. On the other hand, those same Republicans want more tax cuts (which makes the deficit worse), and spending cuts that would likely slow the economy (which also makes the deficit worse).

And Digby chimed in:

Why Democrats haven’t been saying “jobs=deficit reduction” on a loop, I don’t know. I guess they figure it’s just too complicated to explain that when people aren’t working they aren’t paying taxes so the government doesn’t have as much money.

But Benen the points out the obvious:

It’s easier to talk about “belt tightening” during a downturn than it is to explain how economic growth leads to revenues leads to deficit reduction.

But Democrats could at least mention the idea. And Benen thinks that the Republicans wouldn’t agree on anything pro-growth anyway:

Part of this is because Republicans are actively opposed to any measures intended to create jobs, and part of it is the result of a political establishment stuck in the wrong conversation.

So even if Klein argues that there’s a “win-win” scenario available, which could “address both the problems and the politics but Washington seems entirely uninterested in it.”

They want to solve they wrong problem. We’re exploring solutions to a problem that doesn’t exist – inflation and interest rates – and ignoring a problem that does exist – painfully high unemployment. Maybe we should invade Portugal.

Ah well, as Matthew Yglesias says, we have The Ongoing Conservative Recovery:

The private sector added 83,000 jobs in May. That’s not a very good number, but it’s an okay one. It’s especially okay when you see it in the context of increased hours worked per employed person leading to increased earnings. You could see this as employers continuing to increase their demand for labor, but in a slightly cautious way. A month of treading water on the jobs front but with indicators that we’re due for a better number soon. But instead of adding tens of thousands of new public employees to complement the expansion, we shed 29,000 public sector workers. That led to an aggregate figure of 54,000 new net jobs.

To me, that’s terrible.

But it’s crucial to understand what this is, which is the same thing we’ve been dealing with for a long time now. Over the past year, we’ve consistently seen the economy engage in so-so private sector job growth offset by job losses in the public sector. The results are, if you ask me, bad.

But in a decent world, conservatives would be forced to acknowledge that these are the results they claim to want. The private sector’s not being held back by the grasping arm of big government. Government is shrinking. And the shrinking of the government sector isn’t leading to any kind of private sector explosion. It’s simply offsetting meager private sector growth. Indeed, I’d say it’s holding it back. Fewer state and local government layoffs would mean more customers for private businesses and even stronger growth on the private side.

In a decent world… in a decent world they’d be saying it’s time to get as many people as possible working, now – and of course they’d pay taxes and of course the deficit would then shrink, or if lots of people are working, even disappear like it did in the Clinton years. But we don’t live in that world. Chesterton was right. It isn’t that they can’t see the solution. It’s that they can’t see the problem.

But of course when you have a vested interest in the greatest possible number of people living in misery and seething with anger maybe you do see the actual problem and the obvious solution quite clearly, and do nothing, as doing nothing suits your interests. Sure, there are ways to make things better, to solve the actual problem. And it’s not the deficit. But then the last thing you want is to have people begin to be even remotely satisfied with their government and those now in charge, as all this improves.

But that’s another matter. And surely the Republicans do not want anyone to suffer. No one is that cynically ambitious.

Yes, and bacon is good for you and you’re going to win the lottery. Believe what you will. Lots of people will tell you what the REAL problem is. Believe what you will.

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About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
This entry was posted in Austerity Economics, Deficit Hawks, Deficit Issues, Deficit Spending, Economic Theory, Unemployment and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

2 Responses to Solving the Wrong Problem

  1. Dick Bernard says:

    Yet another perfectly on point column. Of course, the people who should be reading and considering what you say wouldn’t get past the first paragraph and don’t want to think about cause and effect or consequences. But keep on talking. Even we seniors (maybe we’re even worse than the kids) don’t want to consider consequences…for our kids and grandkids. Reasoning goes, “I worked hard, got mine, it’s their problem – the future, that is.” And my ‘clan’, on the progressive side, likes to blame Obama as an excuse for their own sitting on the sidelines, or associating only with like thinking uber-liberals.
    Of course we’re building, or rather destroying, that future for those younguns (we’ve got nine grandkids, four to 24). They deserve better. But we’re a bunch of Neros, fiddling while the country burns. Off to coffee…. Good job, always.

  2. Rick says:

    Ezra Klein:

    “Imagine if Republicans offered Democrats a 4:1:1 deal: For every $4 of specific spending cuts over the next 12 years, they’d back $1 of tax increases and $1 of stimulus. A deficit-reduction deal that cut $3 trillion would carry $1 trillion in tax increases – so, $4 trillion in total deficit reduction – and $1 trillion in stimulus. Who’s the liberal who’d say no? And yet, that’s a big deficit reduction package. Among the biggest in our history, actually.”

    Looking for a liberal who’d say no? Look no further, I’m right here!

    Look, either the Republicans are right, or Paul Krugman is right, but if you can’t figure out which side is right, you don’t solve the problem by splitting the difference between right and wrong.

    Specifically, cutting government spending means cutting jobs — some of which are held by government employees, but others are private sector employees who’s jobs depend on government spending — and all that job cutting hurts the economy, which means even more cutting of jobs. It’s as multiple, like dominoes.

    So, for argument sake, eliminating $4 worth of jobs, offset by $2 of stimulus and tax increases (presumably, tax increases on the wealthy), would be like hitting yourself in the head with a mallet, then taking a Tylenol.

    It’s a bit odd to see Obama getting blamed for this week’s weak job numbers, everyone conveniently overlooking the loss of 29,000 public sector jobs that offset the 83,000 gained in the private sector. Nobody even suggests that we obviously didn’t do enough to save those public sector jobs. If Obama can be blamed for something, maybe he should be blamed for that, but you won’t hear that coming from anyone who is advocating cuts in government spending — which right now, unfortunately, seems to be everybody, Republicans and Democrats alike.

    Cutting government spending in hard times just amounts to kicking the economy when it’s down. If you really want to reduce the deficit — and I’m not convinced that’s what Republicans are really trying to do, or else they would have tried to do that during the Bush years — but if you really want to reduce the deficit, you should wait to do that when the economy is in better shape. If there ever was a time for deficit spending, it’s for times like these.

    What we really need to be doing right now is increase spending, rather that cutting it. I find it astounding that Obama and the Democrats are not arguing for more stimulus. Too politically dangerous? If anything threatens Obama’s reelection next year, it is the historical fact that no president gets reelected with more than 7.2% unemployment. The reason nobody is talking about more stimulus for the economy right now, when it’s needed most, is that nobody has the guts to argue for it, which leads to everyone, to various degrees, being on the Republican side of the argument.

    Yes, I know, you may be wondering where I’d expect us to get the money for all this spending I’m calling for; it obviously has to come from higher taxes, or else more borrowing.

    Absolutely. That’s exactly where it needs to come from.

    By higher taxes, I mean we should at the very least let the tax cuts on the wealthy expire. Letting the rate go up four points will not reduce their spending, and will not impact the economy. Nor will it keep the suppliers from investing in expansion. As Paul Krugman said on ABC’s “This Week” this morning (at about 4 mins 55 secs in), a recent National Federation of Independent Business poll asked businessmen why they’re not expanding their business, and although, yes, some cited uncertainty about regulation and the business environment, about 6-to-1 mentioned “lousy business conditions — the demand isn’t there.” In other words, when the demand comes back, so will the supply.

    And yes, in spite of what we’ve been told about our “debt crisis,” we can still borrow, and at pretty low rates. Our triple-A rating will always be there as long as we prove we’re serious about investing in our future (although it certainly won’t be helped if the Republicans keep flirting with the idea of defaulting on our loans, just on a lark.)

    Yes, our 2010 debt-to-GDP ratio was near 60%, yet our S&P rating is still AAA (“Extremely strong capacity to meet financial commitments. Highest Rating”), while Japan’s S&P rating is still AA- (“Very strong capacity to meet financial commitments”) and yet their 2010 debt-to-GDP ratio was about 225%, simply because, despite their serious problems, nobody seriously expects them not to pay their debts, and nobody expects us to fail, either.

    The point is, our Democratic leadership, both in the White House and in Congress, needs to stop allowing themselves to be bullied by the other side, and should stop giving so much credence to conservatives, who not only can’t seem to explain their theory that cutting jobs helps create jobs, it could be argued that they stand to politically benefit from a weak economy leading up to the 2012 elections.

    In a sense, the Republicans may have been right back during the campaign in 2008 when they claimed a President Obama would not be tough enough to stand up to those who threaten harm to our country. Especially in this recent debate on raising the debt limit, those who threaten harm to our country right now are the Republicans.

    Rick

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