Robert Pollin, UMass economics professor and founding co-director of PERI (Political Economy Research Institute), claims that we can reduce the unemployment rate to 4% by 2012, if we can create 18 million jobs. He says that even though 18 million jobs sounds overwhelming, it’s not unrealistic. In fact, 4% unemployment is similar to the rate we had coming out of the recession in 1975 with President Gerald Ford and in 1977-78 with President Carter. One way of reaching this goal, claims Pollin, is by “firming up the economy’s floor” and then “building and injecting roughly $700 billion in new private credit into productive job creating investments.”
The job-creation proposals coming from the Obama administration, in the president’s January 27 State of the Union address and elsewhere, generally point in the right direction, with more spending for clean energy, infrastructure and support for small businesses. These proposals follow from Obama’s February 2009 economic recovery program, which injected $787 billion in new spending or tax relief into the economy over two years. However, just as last February’s stimulus program was too small to counteract the evaporation of $16 trillion in household wealth resulting from the financial collapse, the scope of Obama’s current proposals is nowhere near large enough for the situation today.
For example, Obama has proposed $33 billion in new tax credits for small businesses. By contrast, private borrowing by businesses over the previous six months was down by $1.5 trillion relative to 2007, with the largest proportional cutbacks coming from small businesses. What’s more, Obama’s call to freeze discretionary federal spending in nonmilitary areas is dangerously misguided. The fiscal deficits of 2009 and 2010–at between $1.4 trillion and $1.6 trillion, or around 10 percent of GDP–are indeed very large. But the freeze obscures what Obama and his advisers clearly know–that deficit spending is part of the solution to our economic predicament and will remain so until we see millions of people getting hired into decent jobs.
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