For you, is Labor Day 2011 a well-deserved day off from work? Or is it another tedious day of puttering about the house, sending out resumes and hoping that one day you'll rejoin the workforce? Either way, it's a good day to look back at how we got in this mess and take stock of what may get us out of it.
To make things easy we can compare two very different approaches to job creation, lying almost side by side in time and place. There's the liberal approach, which would have the government prop up the labor market with deficit spending, either by hiring people directly or by letting bids for all sorts of government-funded projects. We tried that in 2009.
And then there's the conservative approach, which favors cutting taxes, regulations and government spending in order to create a friendly environment for private sector job creation. Conservatives distrust fiscal stimulus because they believe that deficits and bureaucracies crowd out private investment. This is the approach we're trying right now.
And to make things even easier we have charts! From the Bureau of Labor Statistics, here's the unemployment rate from January, 2008 to June of this year:
From the Lehman Brothers collapse in September, 2008 to President Obama's inauguration the next January, the unemployment rate jumped nearly two percentage points. Remember, unemployment was already an intolerably high 8% the day he set foot in the White House.
Then came a series of typically liberal moves: the stimulus bill in February, Cash for Clunkers and the GM takeover in the spring. Allowing a bit of time for the pig to move through the python, when the full force of Obama's plan hit, the unemployment rate was flirting with 10%. And there it leveled off and began to dip a bit.
Then the Republicans won control of the House, and forced a more conservative approach. In late 2010 Congress extended the Bush tax cuts and cut the payroll tax. This year Republicans have forced budget cuts at the federal level. And what has the unemployment rate done? It's edging back up again.
Here's another chart that's useful for evaluating conservative economic policy. It compares private and public sector job creation so far this year:
As the stimulus money petered out, state and local governments began laying off people. But the private sector has failed to add enough jobs to keep up with population expansion, much less reduce unemployment . Not to put too fine a point on it, but the lousy job market is a job market designed by conservatives. Shrinking the bureaucracy hasn't kicked off a surge in private sector hiring.
But we knew that, didn't we? This is what John Maynard Keynes taught us: markets are not self-correcting. At times they need government intervention to get them back on track.
On the other hand, the best we can say about the liberal approach was that it was a kind of triage for an critically wounded economy, but by no means a cure. This is because the stimulus was not big enough. We now know that in late 2008 the economy contracted far more than economists or politicians were aware of at the time.
We don't need more tax cuts, because people will just save the extra money or pay off their debts. Indeed this is what they ought to do, but that won't put people back to work. Since neither consumption nor private investment is resulting in new hiring, the government needs to put people to work. In a big way.
And there's a big need. Our nation's roads and bridges are in terrible shape. Our schools are crumbling. We need a new electrical grid that will transport clean energy to homes and workplaces.
And we can afford it. On Friday, the real interest rate on the ten year bond fell to 0%. Bond purchasers are basically giving the U.S. an interest free loan. We've heard Republicans say so often, If the nation's households have to tighten their belts, so should the government. Well, if the nation's households were offered interest free loans they'd take them, wouldn't they? So should the gubmunt. Spend. Put people back to work.
And that's exactly what President Obama needs to tell Congress this week. Normally, he would have benefited from this clear contrast between two very different plans, but since he's acquiesced to GOP demands, he's on the hook for the economy, without the option of running against a do-nothing Congress. That can change, if he wants it to.