New Stimulus Will Damage Recovery

Posted: Dec 20, 2010 12:01 AM

The lame duck Congress and President Obama are retarding the recovery. It's tough medicine to medicine to swallow-- ending unemployment benefits for people who have been out of work for three years-- but it is necessary if we want recovery.

The official U.S. unemployment rate has not been beneath 9 percent since April 2009, and it is unlikely to dip until much of the currently unemployed take jobs paying lower wages and benefits. Back in 2000, 7.2 percent of blue collar workers were either unemployed or underemployed. Today that figure is a staggering 19.5 percent.

When 2007 began, over 1 million Americans were unemployed for half a year or longer. Today, there are over 6 million Americans unemployed for half a year or longer. Since 2000, we have lost 10% of our living wage jobs. In the year 2000 there were approximately 72 million living wage jobs in the United States, but today, there are only about 65 million jobs capable of supporting a middle class lifestyle

When comparing 1940 with 2010, the United States now employs about the same number of people in manufacturing. Considering the fact that we had 132 million people living in this country in 1940, and well over 300 million people living in this country today, this is a very sobering statistic.

The real culprits in the unemployment problem are over 1) regulation-- which retards growth, 2) high taxes - that encourage multinationals to move factories abroad, and 3) illegal immigration-- which depresses entry level job wages.

We agree that now is a bad time to increase taxes, but to keep taxes at the current level, the Republicans accepted failed Obama stimulus policies that will continue to retard growth. Republican leaders should have waited until January and sent Obama a bill minus the Christmas tree of failed stimulus programs attached.

Currently the US economy is dealing with too much debt and too much spending.

We are like a family over extended on the credit cards, but we are refusing to cut spending. This situation can end one of two ways. The family can adjust the lifestyle, cut up the credit cards and pay down debt over time, or the family can be forced to adjust their lifestyle after the banks freeze the credit cards, the home is foreclosed, and the car is towed away.

We prefer the first scenario for the United States. But we are ashamed to admit the politicians, including Republicans, are likely to aggravate the problems until we face disaster.

The United States' creditor is China and the rest of Asia. It is projected that the U.S. trade deficit with China could hit 270 billion dollars for the entire year of 2010. The Chinese government has accumulated approximately $2.65 trillion in total foreign exchange reserves. They have drained this wealth from the economies of other nations such as the United States. Instead of reinvesting all of it, they are just sitting on much of the booty. This creates tremendous imbalances in the global economy.

The fiscal situation is much more desperate at the local level where these governments cannot depend on Chinese money to balance the budget. Incoming governor Jerry Brown is scrambling to find $29 billion more to cut from the California state budget. Brown's assessment of the desperate condition of California state finances is sobering: "We've been living in fantasy land. It is much worse than I thought. I'm shocked."

Detroit Mayor Dave Bing wants to cut 20 percent of Detroit off from essential social services such as road repairs, police patrols, functioning street lights and garbage collection. The second most dangerous city in the United States - Camden, New Jersey - is about to lay off about half its police in a desperate attempt to save money.

Last month, the U.S. government budget deficit increased to a whopping $150.4 billion, which represents the biggest November budget deficit on record. Somehow, the government will roll over existing debt and finance new debt that is equivalent to 27.8 percent of GDP in 2011.

Economists mostly agree continued spending on unemployment benefits is retarding the recovery. Employment restructuring will be more orderly and create less chaos if it happens sooner rather than later. This situation is worse than most understand, and more spending is only exaggerating the pain.

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