“The apocalypse has been postponed, but we are in a situation that is in no way satisfactory,” economist Paul Krugman said during a September 30 panel discussion at EPI. Speaking 21 months into what has become one of the longest and deepest recessions in U.S. history, with unemployment just shy of double-digit levels, the Nobel prize-winning economist didn’t surprise anyone by outlining the widespread loss of jobs, income, and all-around economic pain. But Krugman’s take on the federal deficit was one that is not heard so often. The New York Times columnist and Princeton University professor said that investments made today to help create jobs and strengthen the social safety net would be good for the economy both now and in the future.
“The idea that there is a tradeoff between doing more today and having more later is not true,” Krugman said. He spoke at the panel discussion, Generating a Robust Economy, where a group of economists, lawmakers, and columnists weighed in on the policies that are needed to preserve and create jobs, at a time when some official indicators suggest the nearly two-year old recession may be drawing to a close, but the unemployment crisis persists. Indeed, Krugman projected that because of the large numbers of jobs lost during the recession, even after the job market starts to recover, it will be at least five years before the country approaches full employment. Two days after he spoke, the Labor Department reported that the country’s unemployment level rose again, to 9.8% in September.
The $787 billion Recovery Act passed earlier this year has succeeded in creating new jobs and preventing the loss of others, but it was not large enough to deal with such a steep downturn, Krugman said. “We’ve done way too little,” he said, suggesting that lawmakers had “nickel and dimed” their efforts to support a recovery. Because investments made today will help create a bigger economy in the future, he said, “The notion that we’re going to pay a heavy price (for deficit spending today) is wrong.”
Another common misperception about stimulus spending made under the Recovery Act, he said, is that the full amount invested is simply money added to the federal deficit. Because of the very near-term returns that investment produced, Krugman said, every dollar of Recovery Act spending really only costs the government about 60 cents.
A survey conducted for EPI finds broad support for further investment in job creation. The survey, Tracking the Recovery: Voters’ Views on the Recession, Jobs, and the Deficit, by Hart Research Associates, found that far more Americans are concerned about unemployment than about the federal budget deficit. Asked to list the most important economic problem facing the country, 53% of voters surveyed listed unemployment and a lack of jobs, compared with 27% who listed the federal budget deficit. A majority of those surveyed also said they supported dealing with the deficit in a way that would still allow investment in job creation, rather than policies that would focus on cutting federal government spending to reduce the deficit.
Hart Research Associates president Geoffrey Garin delivered a keynote at the event and pointed to a disconnect between Washington, where many policy makers continue to see deficit reduction as the top economic priority, and ordinary people throughout the country, who want more jobs. U.S. Representative Rosa DeLauro, who also delivered a keynote at the EPI event, warned that the recession had left “frightening holes in our social safety net” and that the country was “in danger of seeing a lost generation of American children.” Her outlook is consistent with some recent analyses from EPI President Lawrence Mishel showing that double-digit unemployment will increase the portion of American children living in poverty to 27% from an already high 18% in 2007. Among African American children, the outlook is even worse, according to Mishel, who sees the portion of those children in poverty rising from 34% in 2007 to more than 50%.
“We are flitting on a precipice,” said DeLauro, who warned, “Now is not the time to dial back.” DeLauro stressed that while additional government investment was a moral imperative, it also made economic sense. She reviewed the history of the Great Depression, where four years of recovery achieved through Franklin Roosevelt’s New Deal suffered a significant setback when federal investments were cut back. “Advisors convinced Roosevelt that it was time to turn off the spigot,” she said. “We cannot let the first signs of an economic recovery convince us that we have beat this recession.”
Krugman was joined on the panel discussion by Washington Post columnist Steven Pearlstein, who moderated, and by J. Bradford DeLong, professor of economics at the University of California at Berkeley, who estimated that the $787 billion Recover Act provided “somewhere between a third and a fifth of what was needed.” The final speaker was EPI’s Research and Policy Director John Irons, who warned about the steep economic cost of doing nothing to prevent further job loss or create new jobs. Citing his new Briefing Paper, Economic Scarring, Irons outlined some of the long-term consequences of even short-lived recessions, including increased poverty and reduced educational attainment, private investment, and entrepreneurial activity.