Why Washington Should Pay Attention to the Economy Here and Now
Robert B. Reich

May 23, 2011

Who's minding the store?

All over Capitol Hill, Republicans and Democrats are feverishly debating how to cut the long-term budget deficit.

But if you don't mind my asking, what about the economy? I'm not talking about the economy five or 10 years from now, when projections show the federal budget wildly out of control or when foreigners might start dumping dollars. I'm talking about the here-and-now economy -- the one Americans are living in day to day.

The national unemployment rate is stuck at 9 percent. The percentage of working-age Americans actually working is at a rock-bottom 64.2 percent. More than 13.5 million people remain out of work.

Hello, Washington?

Even for Americans with jobs, wages are going nowhere. A large portion of new jobs are in retail and hotel chains and in hospital services, none of which pay well. McDonalds is hiring big time.

Meanwhile, in the first quarter of this year, the U.S. economy slowed to a crawl -- a measly 1.8 percent annualized growth -- down from over 3 percent last fall.

Washington, where are you?

Even more troubling, housing prices continue to plummet. They're down a third from their 2006 high. Robert Shiller, the Yale professor whose index gives us the clearest picture of the housing market, predicts housing prices will drop another 15 percent to 25 percent.

Most Americans don't have their nest eggs in stock portfolios. Their nest eggs are their homes. But with those nest eggs shrinking to the size of fish eggs, the wealth of most Americans is vanishing.

That means most Americans have to save big time if they're going to be able to retire, or even send the kids to college. As a result, consumer spending will stay anemic and unemployment will remain high -- unless Washington fills the gap.

But what is Washington doing? Fighting over how much to cut public spending over the next 10 or 12 years. That's an important debate, but it's irrelevant to the here-and-now economy. Right now we need more public spending in order to get people back to work. And we need a new WPA to get the long-term unemployed back to work.

Washington is battling over how much to cut safety nets like Medicaid and Social Security disability in future years. But right now we need stronger safety nets to help those who have lost their jobs or can't find new ones.

Washington is battling over how much in taxes the rich should pay years from now. But right now the focus should be on cutting the taxes of average workers, especially payroll taxes. Lower payroll taxes would put more money in their pockets immediately. Why not exempt the first $20,000 of income from payroll taxes and make up the difference by lifting the ceiling on income subject to the tax, right now?

With Wall Street prosperous again, Washington has stopped talking about the mortgage mess. But it should be requiring those same Wall Street banks -- the banks we taxpayers bailed out -- to renegotiate mortgage loans right now so Americans can keep their homes.

Why is Washington fighting about the long-term federal budget and ignoring the here-and-now economy?

Because the White House and many congressional Democrats don't dare admit how bad the economy continues to be for so many people. They're holding their breath, hoping the recovery catches fire next year before Election Day.

Republicans, meanwhile, don't want to admit how bad the economy is. That would slow their push to cut public spending and shred safety nets. And their patrons on Wall Street don't want to modify mortgages. Republicans would rather Americans believe their big lie that taming the deficit will create jobs and restore the economy.

Some Democrats tell me they'd like to take action on today's economy but don't have the votes. They say Republicans are blocking the way. But why not at least wage a fight about this? The long-term budget deficit is an abstraction to most people. They're struggling in the here and now.

Ironically, Washington's disregard for what's happening right now is worsening the long-term budget problem. That problem is not the long-term debt per se. It's the ratio of that future debt to the size of the future economy. If the current economy sputters or continues to grow at a snail's pace, that ratio will become larger and larger.

In other words, attending to the here-and-now economy is also good for the future.

Earth to Washington: Listen to America. Most Americans are still in a depression. We elected you to take action here and now.