In the wake of the disappointing May jobs report, Republican presidential candidate Mitt Romney comically charged that Barack Obama "hasn't put forth a plan to get us working again." Comically, that is, because the same Senate Republicans who gave the February 2009 stimulus bill only three votes filibustered President Obama's proposed $447 billion American Jobs Act last October. But what Republicans called a "bailout," economists called a winner that could have added up to 2 million jobs and two points to GDP this year.
While a watered-down version of the President's temporary payroll tax cut became law, his proposals for new infrastructure spending, $35 billion in aid to state and local governments to keep 300,000 workers on the payrolls and a $4,000 tax break for hiring the long-term unemployed did not. But on those last two, it turns out, in the past Mitch McConnell and Mitt Romney had proposals of their own. Now would be a good time to take them up on it.
Call it the Romney-McConnell Jobs Plan.
When President Obama called for a $4,000 tax break bounty to employers, economists were mixed about the impact it would have. Massachusetts Governor Mitt Romney, however, was sold on the idea long ago.
Once upon a time, as the record clearly shows, Mitt Romney was an advocate of government action to prime the economic pump. That starts with days as a "severely conservative" governor in Massachusetts from 2003 to 2007. As Salon recounted in "The Stimulus Plan Romney Forgot," Governor Romney hoped to improve the Bay State's dismal 47th ranking for job creation:
[T]he governor went big. In February 2005, Romney unveiled a sweeping $600 million stimulus package to kick-start the economy and create 20,000 jobs over five years...Most controversial: Romney wanted to spend $37 million to create new jobs by offering employers $30,000 for each new person they hired.Echoing the same language the Obama administration would later use in defense of its handling of the economy, spokesman Eric Fehrnstrom pitched the Romney stimulus in advance of Romney's January 2006 State of the State address:
"When we came into office, the state was losing jobs by the thousands every month," said Fehrnstrom at the time. "Today we are adding jobs, and the unemployment rate is almost a full point lower [than] it was when we took office. But we have more work to do."But if the Republicans' presidential candidate once supported hiring incentives to business owners, the GOP's top man in the Senate once offered up a suggestion for helping rescue cash-strapped state and local governments.
With the exception of Vermont, state governments cannot run budget deficits. Mercifully, the federal government can. And as it turns out, both the Congressional Budget Office and economists like Mark Zandi believe aid to state and local governments deliver the among the best bangs for the buck (that is, the multiplier effect) for federal stimulus spending. As it turns out, during the debate over the stimulus program he opposed in early 2009, Senate Republican Minority Leader Mitch McConnell proposed an alternative approach to assisting the states:
"If the money were lent rather than just granted, states would, I think, spend it wisely and the states that didn't need it at all wouldn't take any."Sounds like a great idea. $100 billion in zero interest loans repayable over ten years for the states choosing to take part ought to do the trick.
To be sure, state and local governments were hit by a triple during the Bush recession that began in December 2007. Tax revenues plummeted even as demand for services including health care and unemployment benefits skyrocketed. While President Obama's American Recovery and Reinvestment Act (ARRA) helped fill some of the gaps in state and local budgets, that aid was largely finished by the end of FY 2011. Even though state tax receipts jumped by 8.9 percent last year, the Center on Budget and Policy Priorities reports that 30 states still face budget shortfalls in the coming year. Once inflation is factored in, state and local tax revenue has yet to reach pre-recession levels. The result will be continued government job losses in the states.
No doubt, the hemorrhage of workers at the state, county and municipal level have had a brutal impact of the sluggish American economic recovery. Thanks to intransigent Republican governors and their obstructionist GOP allies in Congress, the shrinking American public sector has slowed the recovery from the Bush recession and added a full point to the U.S. unemployment rate.
That's the word from the Wall Street Journal, where Justin Lahart explained last month that the "unemployment rate without government Cuts: 7.1%." While the Labor Department's establishment survey shows 586,000 government jobs at all levels have been lost since December 2008, the more volatile household survey of unemployment suggests the total might be much, much worse:
In the three months ended April, it shows that there were an average 20.3 million people engaged in government work, 1.2 million fewer than the average for the three months ended December 2008. That is more than double the job losses registered by the establishment survey.Back in March, Paul Krugman expressed the same point, but with some inconvenient historical context for the Party of Reagan. "In fact, if it weren't for this destructive fiscal austerity," Krugman explained, "Our unemployment rate would almost certainly be lower now than it was at a comparable stage of the 'Morning in America' recovery during the Reagan era."
The unemployment rate would be far lower if it hadn't been for those cuts: If there were as many people working in government as there were in December 2008, the unemployment rate in April would have been 7.1%, not 8.1%.
We're talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.In April, the Economic Policy Institute (EPI) showed how much better.
And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent -- significantly better than the Reagan economy at this stage.
Noting that the private sector had gained 2.8 million jobs while federal, state and local governments shed 584,000 just since June 2009, EPI concluded that the public sector job losses constituted "an unprecedented drag on the recovery":
"The current recovery is the only one that has seen public-sector losses over its first 31 months."Then last month, Krugman's New York Times colleague Floyd Norris offered more detail on "the Incredible Shrinking U.S. Government."
For the first time in 40 years, the government sector of the American economy has shrunk during the first three years of a presidential administration.
Spending by the federal government, adjusted for inflation, has risen at a slow rate under President Obama. But that increase has been more than offset by a fall in spending by state and local governments, which have been squeezed by weak tax receipts.
In the first quarter of this year, the real gross domestic product for the government -- including state and local governments as well as federal -- was 2 percent lower than it was three years earlier, when Barack Obama took office in early 2009.
At his press conference Friday, President Obama explained how the state-level "anti-stimulus" that is holding back the national economy:
Keep in mind that the private sector has been hiring at a solid pace over the last 27 months. But one of the biggest weaknesses has been state and local governments, which have laid off 450,000 Americans. These are teachers and cops and firefighters. Congress should pass a bill putting them back to work right now, giving help to the states so that those layoffs are not occurring.Or as Obama asked in frustration last October before Senate Republicans blocked the American Jobs Act:
"Are they against putting teachers and police officers and firefighters back on the job?"In a word: yes. At least, that is, if the proposals to address the problem come from the Democratic president. After all, the same Mitch McConnell who once suggested loaning federal funds to recession-ravaged states later brushed off their massive layoffs as a "local problem." As for Mitt Romney, a man who as Massachusetts Governor pursued stimulus measures to jump-start his state's languishing economy, the Republican nominee had a clear answer on Friday. As CNN reported:
Romney said of Obama, "he wants another stimulus, he wants to hire more government workers. He says we need more firemen, more policemen, more teachers. Did he not get the message of Wisconsin? The American people did. It's time for us to cut back on government and help the American people."With Republican friends like Mitch McConnell and Mitt Romney, the American people don't need enemies.