Why the US must not abandon fiscal stimulus

The Senate’s stimulus bill would alleviate unemployment and speed progress towards economic recovery

"O Lord, grant me chastity and continence -- but not yet!" So reads an oft-quoted prayer from St Augustine's Confessions, a pithy reminder of the difficulty of reining in one's impulses in favour of a far-from-appealing sense of pious restraint.

Such a conflict between profligacy and austerity is certainly familiar not only to 4th-century Roman theologians grappling with religious conundrums, but also to economic policymakers in Great Britain, the United States, and indeed any country still struggling with macroeconomic policy targeted at recovering from the worst recession the world has seen in a generation.

The conflict over spending versus restraint, closely divided along partisan lines, is framing this week's debate before the Senate over a $127bn job stimulus bill, the American Jobs and Closing Tax Loopholes Act 2010.

Opponents of the bill point to recent hopeful indicators, such as an increase in wages (now 3.2 per cent higher than in December 2007 at the beginning of the economic downturn) and the addition of 431,000 jobs in the month of May, as signs that the economy may have turned the corner.

They argue that America is enjoying a strong enough recovery to allow policymakers to focus on "chastity and continence" in spending to address the nation's crippling budget deficit, projected to exceed $13trn for the first time in history. (The deficit comprises a whopping 89 per cent of GDP.)

Proponents of the bill, who range from Senate Democrats to think tanks such as the Economic Policy Institute to the editorial page of the New York Times, have united in a chorus of: "Not yet!" According to the bill's supporters, unemployment has remained too persistent -- and its effects too pernicious -- to shift attention and federal money away from job creation so soon.

Faster, faster . .

The stimulus bill includes $7bn in loan guarantees for small businesses, a $6.6bn research and development tax credit, $24bn in additional Medicaid funding, $1bn to create summer jobs for young people, and $2.6bn to extend the TANF emergency jobs fund, among other provisions. Most importantly, it extends unemployment compensation and a tax credit allowing jobless workers to continue their health insurance for 35 per cent of the original rate until the end of 2010, providing a gross $55bn in additional support for the jobless.

Approximately one-third of the bill's expenditures will be funded by increased taxation on high-income individuals and private equity earnings, while the remainder must be borrowed.

It is easy to understand why deficit hawks may be wary of this second iteration of the much larger February 2009 stimulus package. However, America's unemployed desperately need the American Jobs and Closing Tax Loopholes Act to pass; the bill would also smooth the road to recovery for the economy as a whole.

To begin with, even though US GDP has improved, growing at a 3.0 per cent annual rate in the first quarter of 2010, unemployment remains a severe problem. Although an additional 431,000 workers found employment in May, this is attributable mostly to temporary census hiring by the federal government, which accounted for 412,000 of those jobs.

The national unemployment rate remains an uninspiring 9.7 per cent, with 15 million jobless Americans looking for employment and as many as six jobseekers for every open position. Without outside stimulus, the prospect of returning to pre-recession employment prosperity is slim. For reference, in its current state, in order to return to the 5 per cent unemployment rate of December 2007, the economy would have to add more than 300,000 jobs a month for the next four years -- a growth rate faster than in any four-year period, faster even than in the job boom of the 1990s. It's bound to be a long, tough slog, even with government intervention.

Worse yet, these less-than-ideal numbers do not even capture the full extent of the unemployment challenge facing the nation. The unemployment figure does not account for earners forced to work part-time because they are unable to find full-time employment -- currently at 8.8 million, a meteoric rise from the December 2007 benchmark of 4.7 million. In addition, it only measures joblessness as a fraction of those actively seeking work, discounting figures for "discouraged workers", or people not looking for work because they have given up on finding employment, which have risen 291,000 on the previous year. Projections for the gross number of Americans who are unemployed, underemployed, or discouraged have reached a record high of 25 per cent.

And inequality widens

Economically speaking, this is quite bad enough. What senators ought to find even more worring are the social consequences: the staggering inequalities of US employment that the recession has unearthed and exacerbated. Compared with previous recessions, such as the dotcom bubble of the late 1990s, which primarily affected white-collar workers, the biggest losers in the Great Recession of 2007-2009 have most worked in less well-compensated jobs such as construction and auto manufacturing.

For example, as of May 2010, the unemployment rate among college graduates is a relatively sunny 4.7 per cent, compared to high school graduates' 10.6 per cent and high school dropouts' 15 per cent. Income inequality has always been a fact of America's economic landscape, but it typically narrows during a recession. In 2007-2008, it widened.

Another social danger of the current state of American unemployment is the unique threat posed by long-term unemployment, which hits the least-educated the hardest. The average joblessness duration has reached 31.2 weeks, the longest stretch since the Bureau of Labor Statistics started collecting data of this kind in 48 weeks.

Long-term unemployment is especially damaging for a nation's economy, because it removes the resources necessary for workers fully to develop their own -- or their children's -- financial and human capital, implicit in activities as schooling, skills training and investment, all necessary for starting a business. And with a 20 per cent unemployment rate for those under 25, many of whom don't qualify for unemployment insurance at all due to their limited work history, we risk alienating an entire generation of working-class youth.

The Senate's stimulus bill would alleviate some of the most crushing problems in US unemployment and also speed the road to economic recovery. Drawing on experience, the Congressional Budget Office has estimated that 1.4 million to 3.4 million workers who are currently employed would be jobless, were it not for the February 2009 jobs bill, but warns that the force of the previous stimulus has largely expired.

Not only would the bill provide a safety net to some of the most in-need workers, but extending unemployment insurance stimulates demand as well. The unemployed tend to spend money immediately to address pressing expenses such as groceries, health care and automobile/home payments, thus circulating money back into hard-hit local economies. In fact, on average, every $1bn of unemployment insurance money issued generates between $1.63bn and $2.15bn of additional GDP, due to this circulation factor.

The stock market may have bounced back and America's GDP growth looks fairly solid, but lingering unemployment is still the ball and chain dragging economic recovery back to earth. The staggering extent of unemployment, underemployment and reductions in the workforce has especially damaged the long-term prospects of America's least privileged, and exacerbated the social tensions created by income inequality.

It is imperative that the Senate continue to assist the US on its path to full recovery by passing the American Jobs and Closing Tax Loopholes Act, and by continuing its commitment to job creation and to alleviating the negative effects of unemployment.

O Lord, grant us fiscal austerity -- but not just yet.

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A pro-union march in 2014. Photo: Getty
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The legacy of sectarianism is still poisoning the air of Scotland

Ruth Davidson has reinstated two Stirling councillors who posted anti-Catholic and racist messages on social media. That this kind of cretinous guff still goes on in my hometown in 2017 raises my hackles.

Kenny Dalglish was a bluenose: as a boy in the mid-60s, he and his father would make the short journey to Ibrox to cheer on Rangers, then Scotland’s most successful team. With the football allegiance came a cultural one, too. Or, probably, the other way round.

Wee Kenny could play a bit, obviously, and dreamed that his beloved Gers would sign him up. But, as Richard T Kelly writes in Keegan and Dalglish, his enjoyable new double biography of the two footballing greats, "Rangers had a certain preference for big lads, or else lads with an obvious turn of pace; and Dalglish, despite his promise, had neither of those easy attributes."

Rangers’ loss was Celtic’s gain, but it took some effort. The former, writes Kelly, "was the club of the Queen, the Union, Scotland’s Protestant majority… founded by Freemasons and members of the Orange Order, strongly tied to the shipyards of Govan. Glasgow Celtic was the team of Irish Catholic patriots, revolutionary Fenians and Home Rulers, begun as a charitable organisation… a means to bolster the faith and keep the flock out of the clutches of Protestant soup kitchens. It was going to be a serious step across a threshold for Dalglish to accept the overtures of Celtic."

In the end, Jock Stein dispatched his number two, the unhelpfully named Sean Fallon, to meet the young starlet’s family. "Fallon entered a domestic environment he felt to be 'a bit tense' -  a Rangers house, a lion’s den, if you will. Fallon even picked up the sense that Bill [Dalglish’s father] might rather his son pursue [an] apprenticeship in joinery."

The deal was done ("My dream was to become a professional footballer – the location was just a detail," Dalglish would later say) and the most gifted player Scotland has ever produced went on to make his reputation kitted out in green and white stripes rather than royal blue -  a quirk of those difficult times for which those of us classed as Fenian bastards rather than Orange bastards will be forever grateful.

Growing up in west and central Scotland, it was hard to avoid being designated as one type of bastard or the other, even if you supported a team outwith the Old Firm or had no interest in football at all. Thanks to 19th century immigration, the terrible religio-political divide of Ulster was the dominant cultural force even in Stirling, the town around 25 miles from Glasgow where I grew up and where I now live again. If you went to the Catholic school, as I did, you were a Fenian; if you went to the Proddy (officially, non-demominational) school, you were a Hun. You mostly hung around with your own, and youthful animosity and occasional violence was largely directed across the religious barricades. We knew the IRA slogans and the words to the Irish rebel songs; they had the UVF and the Red Hand of Ulster. We went to the Cubs, they went to the Boys’ Brigade. We got used to the Orange Walks delivering an extra-loud thump on the drums as they passed the chapel inside which we were performing our obligatory Sunday observance.

At the time – around the early and mid 80s – such pursuit of identity might not have been much more than a juvenile game, but it was part of something more serious. It was still the case that Catholics were unemployable in significant Scottish industries – "which school did you got to, son?" was the killer interview question if your answer began with "Saint". This included the media: in the late 90s, when I joined the Daily Record – the "Daily Ranger" to Celtic fans (its Sunday sister, the Sunday Mail, was known to Rangers fans as the "Sunday Liam") – vestiges of this prejudice, and the anecdotes that proved it, were still in the air.

The climate is undoubtedly better now. Secularisation has played its part - my own daughters attend non-denominational schools – even if, as the sportswriter Simon Kuper has observed, many are "not about to give up their ancient traditions just because they no longer believe in God". The peace process in Northern Ireland and important gestures such as the late public friendship between Ian Paisley Sr and Martin McGuinness have made a difference. And I suppose the collapse of Rangers as a footballing force, amid financial corruption that saw them dumped into the bottom tier of Scottish football, helped.

But the sensitivity remains. The 2014 Scottish independence referendum broke down in part across tribal lines, with many Celtic supporters, once Labour, now SNP, loudly backing a Yes vote, while Rangers fans were on the No side. The prospect of Brexit creating a significant border between the north and south of Ireland, which could inflame recently and shallowly buried tensions, makes one shudder. And even locally, the old enmities continue to raise their grubby heads. Ruth Davidson, leader of the Scottish Tories, is currently taking flak for allowing the reinstatement of two Stirling councillors who had posted anti-Catholic and racist messages on social media prior to their election. The pair have apologised and agreed to take part in diversity training, but I confess that this kind of cretinous guff still goes on in my hometown in 2017 raises my hackles. The rawness remains.

That this is so was brought to me a few years ago when I filed a column containing the word ‘sectarianism’ to a Scottish newspaper. Though the context had nothing to do with Catholic/Protestant or Celtic/Rangers, the editor asked me to remove it. "It’ll be deliberately misunderstood by one side or the other, and probably both," he said. "It’s not worth the hassle. In Scotland I’m afraid it never is."

Chris Deerin is the New Statesman's contributing editor (Scotland).