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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Why Barack Obama was right to release Chelsea Manning

A Presidential act of mercy is good for Manning, but also for the US.

In early 2010, a young US military intelligence analyst on an army base near Baghdad slipped a Lady Gaga CD into a computer and sang along to the music. In fact, the soldier's apparently upbeat mood hid two facts. 

First, the soldier later known as Chelsea Manning was completely alienated from army culture, and the callous way she believed it treated civilians in Iraq. And second, she was quietly erasing the music on her CDs and replacing it with files holding explosive military data, which she would release to the world via Wikileaks. 

To some, Manning is a free speech hero. To others, she is a traitor. President Barack Obama’s decision to commute her 35-year sentence before leaving office has been blasted as “outrageous” by leading Republican Paul Ryan. Other Republican critics argue Obama is rewarding an act that endangered the lives of soldiers and intelligence operatives while giving ammunition to Russia. 

They have a point. Liberals banging the drum against Russia’s leak offensive during the US election cannot simultaneously argue leaks are inherently good. 

But even if you think Manning was deeply misguided in her use of Lady Gaga CDs, there are strong reasons why we should celebrate her release. 

1. She was not judged on the public interest

Manning was motivated by what she believed to be human rights abuses in Iraq, but her public interest defence has never been tested. 

The leaks were undoubtedly of public interest. As Manning said in the podcast she recorded with Amnesty International: “When we made mistakes, planning operations, innocent people died.” 

Thanks to Manning’s leak, we also know about the Vatican hiding sex abuse scandals in Ireland, plus the UK promising to protect US interests during the Chilcot Inquiry. 

In countries such as Germany, Canada and Denmark, whistle blowers in sensitive areas can use a public interest defence. In the US, however, such a defence does not exist – meaning it is impossible for Manning to legally argue her actions were in the public good. 

2. She was deemed worse than rapists and murderers

Her sentence was out of proportion to her crime. Compare her 35-year sentence to that received by William Millay, a young police officer, also in 2013. Caught in the act of trying to sell classified documents to someone he believed was a Russian intelligence officer, he was given 16 years

According to Amnesty International: “Manning’s sentence was much longer than other members of the military convicted of charges such as murder, rape and war crimes, as well as any others who were convicted of leaking classified materials to the public.”

3. Her time in jail was particularly miserable 

Manning’s conditions in jail do nothing to dispel the idea she has been treated extraordinarily harshly. When initially placed in solitary confinement, she needed permission to do anything in her cell, even walking around to exercise. 

When she requested treatment for her gender dysphoria, the military prison’s initial response was a blanket refusal – despite the fact many civilian prisons accept the idea that trans inmates are entitled to hormones. Manning has attempted suicide several times. She finally received permission to receive gender transition surgery in 2016 after a hunger strike

4. Julian Assange can stop acting like a martyr

Internationally, Manning’s continued incarceration was likely to do more harm than good. She has said she is sorry “for hurting the US”. Her worldwide following has turned her into an icon of US hypocrisy on free speech.

Then there's the fact Wikileaks said its founder Julian Assange would agree to be extradited to the US if Manning was released. Now that Manning is months away from freedom, his excuses for staying in the Equadorian London Embassy to avoid Swedish rape allegations are somewhat feebler.  

As for the President - under whose watch Manning was prosecuted - he may be leaving his office with his legacy in peril, but with one stroke of his pen, he has changed a life. Manning, now 29, could have expected to leave prison in her late 50s. Instead, she'll be free before her 30th birthday. And perhaps the Equadorian ambassador will finally get his room back. 

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.