The 2 Percent Solution Isn't One
12:00 AM, Jul 7, 2012 • By IRWIN M. STELZER
Two percent is no solution. That’s the growth rate chalked up by the U.S. economy in the first quarter (1.9 percent for those who believe in the precision with which GDP is measured) and that most forecasters see in America’s near-term future. Macroeconomic Advisers is not alone in lowering its forecast for this year’s growth, from 2.4 percent, which it expected a few months ago, to 2.1 percent. That won’t do much to bring down unemployment, or to persuade businesses to worry less and invest more, or to prize a few extra dollars from consumers to send their kiddies back to school in style. Which adds to gloom created by forest fires in the West, destructive storms in the East that have left millions without electricity, 100-degree heat in many parts of the country, and a Fourth of July holiday that fell on a Wednesday, eliminating the possibility of stretching the celebration of our independence into the long weekends that are created when the holiday falls on any other weekday.
Worst of all, the second quarter was the worst for job creation in two years. Only some 80,000 jobs were added in June, the unemployment rate remained stuck at 8.2 percent, and the more meaningful rate (technically, U6), which includes workers too discouraged to continue looking for work and those involuntarily working short hours, ticked up to 14.9 percent. That means that over 23 million workers can’t find full time work. Some 5.4 million have been out of work for 27 weeks or longer, and millions more have dropped out of the labor force completely, bringing the share of the working-age population with jobs or looking for work to a 30-year low.
Most economists, who spent this week raising their forecasts, were embarrassed (assuming that hardened economic forecasters are capable of embarrassment), but not quite as much as President Obama (assuming politicians are capable of embarrassment), who now has to explain why his trillion dollar stimulus and massive deficits have failed to produce more than what International Monetary Fund managing director Christine Lagarde describes as a “tepid” recovery. And even that is likely to morph into a recession, Lagarde warns, if we don’t avoid the “fiscal cliff” towards which the country is headed unless current legislation calling for a massive tax increase and sharp spending cuts is amended, and if Congress does not “promptly” raise the debt ceiling to avoid spooking financial markets.
Fortunately for the president, he ranks among history’s better campaigners. Although about two million jobs have disappeared on his watch, and the unemployment rate has risen from 6.8 percent to 8.2 percent, he has managed to paint Mitt Romney as the cause of workers’ woes. Using waves of television ads in key swing states, Obama has successfully labeled the former head of Bain Capital the “job outsourcer in chief.” The inability of the Romney camp to fashion a response has political observers wondering how long the campaign will stick with a strategy of saying little of substance while banking on Obama’s poor economic record to get the moving vans loading up at the White House early next year.
Alan Krueger, chairman of the president’s Council of Economic Advisers, took to financial news channels immediately after today’s jobs report to point out that 4.4 million private sector jobs have been added in the past 28 months, proving “the president has the right medicine for the economy”—more infrastructure spending and more money to states to hire teachers and fire-fighters. In effect, damn the deficits, full spending ahead.