Failure by Design: The Story behind America's Broken Economy

Where to from Here?

Where to from Here? 9 5 The pressures placed on America’s working families by economic policies that produced slow-and-unequal growth ended up not just stressing them, but also breaking the economy. And there is little relief on the horizon. In August 2010, the unemployment rate stood at 9.6%, essentially the same level it had been a year before. Most forecasts (private and public) for 2011 project that it will be at essentially the same level a year from now. The economic challenges over the next few years are daunting; just returning to the 2007 status quo will take several more years. But even this won’t be enough—we need to build a new economy that works better for America’s working families. Choices need to be made that benefit all of working America—not just the rich and powerful. And if this is to be done, we will have to design an economy that just works better and no longer risks a repeat of the Great Recession. Think of the American economy like a patient suffering from chronic ailments driven largely by bad choices—smoking, eating unhealthy foods, and not exercising. Then he makes another bad decision and decides to take up swimming with sharks, whereupon he is promptly bitten. The clear priority is to staunch the bleeding coming from the shark-bite—until this wound is healed, there can be no serious progress made in addressing the chronic ailments. But once it is healed, this patient also needs help quickly to reverse the bad decisions that led to his chronic ailments. Today’s policy-making elite are severely underestimating both the wound and the chronic ailments. While much has been done to combat the recession, the urgency policy makers feel has clearly waned and the economy is assumed to be on a path to recovery. This is a very premature diagnosis: mainstream, private-sector forecasts predict that unemployment will be higher in 2011 than it was in 2010, and that 2011 will see the highest full-year unemployment rate since the Bureau of Labor Statistics began consistent tracking in 1948, higher than the worst year of the early 1980s recession. And in 2012, the unemployment rate will be higher than the worst year of the early 1990s recession. And even in 2013, the unemployment rate will be higher than the worst year of the early 2000s recession, six full years after the Great Recession began. In short, it is far too early to declare the patient stable. Clear economic remedies exist. The economy needs more demand for goods and services , and the full support of fiscal, monetary, and exchange rate policies have yet to be deployed to generate this demand. But, politics and ideology lie in the way. And as is usually the case, in a contest between good economics and bad politics, politics F A I L U R E B Y D E S I G N 9 6 seems to win every time. But there should be no mistake: tolerating an agonizingly slow recovery from the Great Recession is a choice, not an inevitability. Perhaps one last illustration of the perverse choices made in the U.S. economy in recent decades will make the point. The worst year of the early 2000s recession and recovery for the unemployment rate came in 2003, when the unemployment rate reached 6.0%. This level of unemployment was cited to support adding $350 billion to the national debt by cutting taxes (the Jobs and Growth Tax Relief and Reconciliation Act of 2003, or JGTRRA). These tax cuts overwhelmingly benefited richer taxpayers and provided very little actual job creation, yet Congress enacted them. But despite the fact that the unemployment rate is now forecast to be just under 10% in 2011, Congress seems unwilling to take action that is anywhere near as large as JGTRRA, even though today’s crisis is clearly more acute and there are many effective job creators that could be financed with JGTRRA-sized fiscal support for the economy. Again, the economy’s current distressed state is a result of choices, not inevitability. The rush to declare the fallout from the Great Recession over would be more forgivable (though no less unwise) if it were done in the name of trying to reverse the bad decisions that had led to the chronic ailments of slow growth and rising inequality. But, just as policy makers are constrained by political and ideological orthodoxy in...