There is no more robust piece of conventional wisdom in Washington right now than this: Congress and the White House need to "do something" to address the jobs crisis.
In the wake of Scott Brown's Massachusetts victory, amid the conflicting messages--scale back the agenda! commit to a bolder agenda!--politicians and pundits across the spectrum were unanimous that delivering jobs is now Washington's job number one. "All of these things," said Rahm Emanuel, referring to the political messages of the past weeks, "all of these things start and lead to one place: J-O-B-S."
And yet. The jobs proposals on the table are paltry. As usual, the House acted first, passing a far smaller than necessary but at least decent jobs package with a price tag of $180 billion. In the Senate, the bipartisan compromise offered by the Finance Committee's Max Baucus and Chuck Grassley came in at $85 billion, $31 billion of which consisted of tax cuts with no job-creating justification (including an estate tax repeal that would benefit the richest 0.25 percent of households). So egregious was the bill that majority leader Harry Reid scratched it once its details were announced, replacing it with a $15 billion bill that still does less than the absolute bare minimum necessary.
It's difficult to overstate just how mismatched such proposals are with the scale of the crisis. As Robert Pollin notes in this week's cover story, we need to create somewhere near 18 million jobs over the next three years to get the economy back to full employment. Viewed in this context, the math is damning. By conservative estimates, last year's $787 billion recovery act is set to deliver 2.5 million jobs, but that leaves a gap of at least 10 million more jobs just to get back to pre-recession levels; and it is scheduled to taper off just as unemployment peaks. By leveraging $700 billion in private sector investment as Pollin suggests, we can probably create the needed jobs with an additional $200 billion in federal funds to shore up state and local governments. Yet here we are, talking about $15 billion. Imagine for a moment the reaction on the Sunday talk-shows if, after President Obama called for 20,000 more troops in Afghanistan, Congress approved spending for just 333.
As wrenching as it is, the unemployment crisis is not a policy problem without a policy solution, as Pollin persuasively demonstrates. The problem is politics. The deficit fearmongers have a stranglehold on the debate. At the same time, however, over the next few years the single most important political imperative for the White House and the Democratic Party is lowering the jobless rate. And despite the obstacles, there is a lot they can do to make this happen. For one thing, as Pollin notes, the Fed could use its sway to bring the banks on board.
But the proposals offered here could also be put to Congress, creating a series of difficult votes for the opposition. A bill that would require banks to lend more of their reserves for productive investments and small-business job creation--or, better yet, one that would tax their "excess" reserves--would be hard to oppose in an election year. Since much of the agenda revolves around leveraging private investment, promising coalitions could be assembled: small business associations should be happy to see the government expand loan guarantees, to choose but one example. To avoid death by filibuster, each jobs bill could be run through reconciliation, since each will almost certainly have a "substantial budgetary effect." The political case for ambitious federal action on jobs is nearly as compelling as the moral case.