Stephen Pearlstein, business columnist for The Washington Post, makes an argument familiar to regular readers of this blog:
“Somewhere between the rantings of the Republican right, which is peddling the nonsense that excessive government spending is to blame for high unemployment, and the Democratic left, which clings to the false hope that another helping of fiscal stimulus is all that is needed to get millions of Americans permanently back to work, is this stubborn reality:
The loss of 8 million jobs reflects problems that are largely structural, not cyclical, which means they won’t be brought back by fiddling with a magic dial in Washington that controls how much the government spends.”
As Pearlstein notes, millions of construction and manufacturing jobs have disappeared and aren’t coming back soon. In addition, large numbers of displaced workers find themselves chained in place, unable to move to seek jobs because they are stuck with a mortgage for more than the house is worth.
And how did all this happen?
The structural problems, however, go well beyond these mismatches. The reason there were 8 million additional jobs back in 2007 is that demand for goods and services was artificially – and unsustainably – inflated by cheap, plentiful credit. Between 2002 and 2007, household debt was increasing at the torrid pace of more than 10 percent annually, while business debt and the debt of state and local governments was growing at an average of 9 percent. Much of that money was used to finance present consumption.
Now all that has reversed. Household debt is shrinking at a rate of 2.4 percent per year as the savings rate has risen from nearly zero to more than 5 percent. Meanwhile, business debt declined 2.5 percent last year and is now flat, as is the case for state and local governments.
All that deleveraging and living within our means is obviously a good thing in the long run. But what it means for the economy in the short run is that neither the excess consumption nor the jobs it supported are coming back.”
Our political leaders haven’t come to grips with that reality yet, and neither have the American people. What we’re seeing in the body politic right now is a primal scream of denial, an insistence that easy answers be found — right now! — so that we can all go back to those good ol’ days of not so long ago.
That’s why, less than two years after handing overwhelming victory to the Democrats, voters appear set to toss them aside and cast their lot with the Republicans next. Well, you can believe me now or you can believe me later, but John Boehner, Mitch McConnell and Sarah Palin certainly don’t have the answers either.
Just ask them.
It may be that the American people just aren’t prepared yet to hear the truth. This is part of a process of denial, anger and bargaining, followed only later by acceptance, that we just have to work our way through to get to the other side. It isn’t pretty, but it’s probably necessary.