Oct. 29, 2011 – 12:44 p.m.
Political Economy: Rx for Payrolls
By John Cranford, CQ Columnist
The disconnect between economic policy and reality is becoming ever more evident. And as the economy shows increasing signs of sputtering to life, it may just be that we’ll manage to climb out of the dumps with Congress having done relatively little to help things — and, with luck, relatively little to hurt.
What’s happening on Capitol Hill reads like the plot of a bad television medical drama, where two physicians argue over the diagnosis while the patient slowly dies. Or, perhaps in this case, becomes disgusted, quietly gets up off the gurney and leaves.
The underlying illness may persist, but the treatment alternatives don’t promise much and the politicking is downright annoying.
In the case of the U.S. economy, job growth is still hard to find and housing remains a trouble spot, but other symptoms of weakness are clearly abating. It may be that the economy will recover on its own, which in truth wouldn’t be a surprise. It’s a big country that manages to generate $14 trillion in gross national income even during a bad year. Congress has never proved itself to be of much help when it intentionally sets out to boost that number in a macro way.
Lawmakers generally just promote the micro items that they like or understand. That isn’t necessarily wrong. But it tends to be based on a blinkered view.
Take, for instance, all the rhetoric these days about jobs bills. Every tidbit of proposed legislation is characterized as either a jobs-promotion measure or a jobs killer.
Just last week, the House passed a mostly Republican-supported bill to benefit a copper mining conglomerate in Arizona. Supporters touted the company’s claim on its website that the project would create 3,700 “direct, indirect and induced” jobs. So now we’re counting the “induced” jobs from a land-swap bill.
Then there was a measure to repeal a requirement that governments at all levels withhold 3 percent of the value of contracts, which the House passed on an overwhelmingly bipartisan vote with the endorsement of President Obama. The withholding is intended to be a minimum income-tax payment and to cut down on tax evasion. Bill proponents argue that repeal would aid the cash flow of strapped companies and enable them to hire more workers.
But if these companies aren’t making money, they aren’t about to take on employees. And if they are making money, they are supposed to make estimated tax payments every quarter — which would have been offset by the withholding. It’s a stretch to say that repeal will do much to dent the 9.1 percent jobless rate, but it will limit the capacity of the IRS to collect unpaid taxes.
The Best Medicine
When the Democrats speak of creating jobs these days, as often as not they are dissembling. What they are really trying to do is fill holes. There are holes in state- and local-government revenue streams that will lead to teachers and other workers being fired for lack of money. There are holes in consumer and business demand that represent an effort by the country at large to reduce its debt burden and store a few nuts for the winter.
Job preservation, not creation, is mostly what the Democrats are about. But however valuable that might be, it just sounds defeatist. So, that isn’t how they present their ideas. And they can’t muster much support, especially across the aisle.
Political Economy: Rx for Payrolls
For their part, the Republicans speak in reverent terms of taking steps to help “job creators” and to protect them from a punishing government. But these job creators the GOP talks about are capitalists, entrepreneurs, big corporate machines, even. They are supposed to be risk-takers, not pantywaists afraid of every bump in the road. Do they really need to hide behind Washington?
More importantly, these job creators are — at their core — anything but. They are single-mindedly in pursuit of one goal: making money. If they need workers, they will hire them. But they are not on some eleemosynary mission to give jobs to the deserving. If need be, to make money they will fire people. Seriously.
Given lawmakers’ approach to the jobs issue, it’s a good thing the economy seems to be recovering on its own.
Gross domestic product increased in the three months from July through September at the fastest pace in a year. Stronger consumer spending and a big pickup in business investment contributed to the 2.5 percent annual growth rate in the third quarter. Even net exports were a plus. Residential construction has added to growth for two straight quarters now, the first time that has happened since 2005. And for the first time in a year, retrenchment by governments didn’t subtract from growth.
It’s certainly too early to cheer very loudly, but all of the above suggests that the economy weathered its rough patch early in the year and is back, more or less, on a possibly sustainable course.
Job growth does need to accelerate considerably to shrink unemployment. But new claims for jobless benefits are falling, and that may indicate that the bleeding has been contained. Given the prospects for legislative cooperation, the best medicine going forward might be just to let the patient slowly recuperate. In other words, the best prescription is no more posturing.