Buy In Now, Pay Later

Dean Baker

Any­one hop­ing that Pres­i­dent Bush would pro­duce a plan to help the nation’s work­ers through dif­fi­cult times was sure to be dis­ap­point­ed by his State of the Union address. Not only did he fail to present any solu­tions, he doesn’t even seem to real­ize that we have a prob­lem. He boast­ed about low infla­tion at a time when the Fed­er­al Reserve Board has expressed con­cerns that the econ­o­my risks defla­tion. He tout­ed the cur­rent low inter­est rates, which the Fed has quite explic­it­ly main­tained because of the extra­or­di­nar­i­ly weak state of the economy.

It is under­stand­able that the pres­i­dent wouldn’t dwell on bad news in his speech, but it seems only rea­son­able to acknowl­edge the obvi­ous. For the first time since the Great Depres­sion, the Unit­ed States has gone three years with­out cre­at­ing any jobs. Since the job loss also has been accom­pa­nied by a short­en­ing of work­weeks, the total num­ber of hours worked in the econ­o­my is back to its Novem­ber 1998 lev­el. While the cur­rent 5.7 per­cent unem­ploy­ment rate is not very high by his­toric stan­dards, the ratio of employed work­ers to pop­u­la­tion (which econ­o­mists rec­og­nize as a more mean­ing­ful mea­sure of the labor market’s strength) is down more than 2 full per­cent­age points from its 2000 peak. This cor­re­sponds to a drop in employ­ment of more than 4 mil­lion peo­ple. Not sur­pris­ing­ly, the weak­ness in the labor mar­ket also brought an end to the strong wage growth of the late 90s.

Unfor­tu­nate­ly, the out­look for the near future in a Bush admin­is­tra­tion doesn’t look much brighter. His top pri­or­i­ty is more tax cuts for the wealthy. More tax breaks, cou­pled with more mil­i­tary spend­ing, will divert mon­ey from pro­duc­tive uses while pro­vid­ing lit­tle stim­u­lus to the econ­o­my. The president’s biggest hope is that the cur­rent hous­ing bub­ble can con­tin­ue to sus­tain the econ­o­my through the elec­tion; the dam­age that will result when it bursts can be dealt with later.

Dean Bak­er is co-direc­tor of the Cen­ter for Eco­nom­ic and Pol­i­cy Research and co-author of Social Secu­ri­ty: The Pho­ny Cri­sis (Uni­ver­si­ty of Chica­go Press, 2000).
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