[This is the ninth installment of a blog series Tom is writing on the national debt crisis. They all can be seen here. Related, see also our signature on these two open letters. – CZ]
The storyline of the U.S. debt crisis is not always predictable. The controversial S&P downgrade of U.S. debt is the latest sad chapter. But the basic plot is becomingly increasingly clear: the United States is reeling from a debt crisis; that’s different from a normal recession.
For much of recent history, consumers spent more than they earned, banks and financial institutions over-leveraged, and governments spent more than they generated in revenue and made future promises to the baby boom generation that it can’t keep. The resulting bubbles have burst. And we – families, businesses, non-profits, governments – are now trying to figure out how to pay down debt. Or in the case of the federal government, slow the increase in debt. That’s not much fun.
Put simply, the cause of this economic problem is different from the normal recession. Therefore, the solution is different.
Yet, most of our political leaders and media commentators continue to act as if this recession is like any other. Whether they’re comparing the “Obama Recovery” to the “Reagan Recovery” or focusing on the ways government can spend more to “stimulate” the economy, the talking points of our political leaders are largely missing the mark.
As is true with families, businesses, universities, or social services organizations that are facing huge debts and stifling costs to service that debt, there’s only one answer for a debt-burdened government: curtail deficit spending and get your fiscal house in order. The sooner that is done, the quicker our economy will begin to grow.
The alternative is massive economic disruption or painfully slow growth. Those scenarios are playing out around the world, with major economic disruption in Greece, Portugal, Ireland, and Italy and (as noted in earlier blogs) painfully slow growth for over two decades in Japan.
Most of our media and political leaders continue to understate the problem or simply avoid it. The latest Jobs Report on Friday was treated as “good news” and another sign that the recovery may be just around the corner. After all, unemployment ticked down to 9.1 per cent, and the economy added 117,000 jobs, the Bureau of Labor Statistics (BLS) reported.
It was hard to find anyone talking about the real story. 139,296,000 people were working in July, the BLS said. That’s DOWN 38,000 from the 139,334,000 working the month before. The percent of the population employed dropped to 58.1, steadily down from 58.5 last August. The unemployment rate dropped only because the number of individuals leaving the work force -- the so-called “discouraged workers” – increased by 137,000.
This highlights a key reality about this economic downturn. Businesses are not simply laying off workers and then bringing them back to the same jobs when consumers start spending again. Instead, the very nature of the jobs are changing, and many are being eliminated. That’s just one factor that makes this economic challenge different from the typical recession.
Most of us prefer to avoid unpleasant realities. That’s certainly true of those in political office; unpleasantness rarely attracts voters. Yet, the longer we close our eyes to the economic reality we face and the need to turn the corner on our national debt, the more difficult our economic challenge will be and the more painful the cure.