Why Washington Has Given Up on the Unemployed

Why have Congress and President Obama done nothing to spur job creation in recent months?

May 4, 2011

Why have Congress and President Obama done nothing to spur job creation in recent months?

The U.S. economic debate in recent months has centered almost exclusively on the need for deficit reduction. Indeed, given the inordinate amount of attention politicians and the media are giving the issue, one would be forgiven for overlooking the country’s serious jobs crisis.

It remains painfully clear that an unemployment rate mired around 9% is the most important issue facing the country. While the public is increasingly seeing the deficit as a serious concern, 39% of Americans in an April CBS News/New York Times poll named the economy and jobs as the top challenge facing the country, compared to just 15% who mentioned the deficit.

Americans are right to be fearful. Even if the economy continues to create jobs at the relatively brisk pace it managed in April 2011, it would still take the better part of a decade to return to pre-recession employment levels while also creating enough jobs for the 125,000 people entering the labor force every month.

It is evident that the 2009 economic stimulus and the tax cut deal President Obama brokered with Congress at the end of 2010 are not decreasing the unemployment rate fast enough. Despite the obvious need for the government to do more to create jobs, why have Congress and the president effectively given up on the unemployed?

GOP rigidity, Democratic cowardice

A constellation of factors explains why Washington has forsaken the jobless, with Republicans’ ideological rigidity being one of the key reasons. After all, using the government to spur economic growth by doing anything other than cutting taxes or gutting regulations would force Republicans to acknowledge that the government can indeed play a positive role in the economy.

It is clear there are additional steps the government can take to boost GDP, and hence reduce the jobless rate, in the near term. For example, the nonpartisan Congressional Budget Office (CBO) estimated in January 2010 that every dollar the government spends on increasing aid to the unemployed could generate up to $1.90 in economic activity over the next several years — with the bulk of the stimulus taking effect over the short term. Similarly, each dollar the federal government invests in infrastructure could add up to $1.20 to the economy, while every dollar it gives to the states for purposes other than infrastructure could generate up to $1.10 in economic growth.

However, as their displeasure at extending unemployment benefits at the end of last year indicates, conservatives are loath to concede that government spending can help the economy. Indeed, despite nearly all evidence to the contrary, House Speaker John Boehner insists that government spending “is holding our country back and keeping our economy from creating jobs.”

But there are also smart ways the government can spur growth through the more Republican-friendly approach of cutting taxes. For example, beyond the tax cut deal President Obama negotiated with Congress at the end of 2010, Washington could reduce employers’ payroll taxes, which the CBO estimates would boost GDP by up to $1.20 for each dollar in tax cuts. Unfortunately, the Republican-held House has taken no action on this front.

For their part, the Democrats’ inaction when it comes to creating jobs is explained by simple political cowardice. Still smarting from their electoral drubbing in 2010 and fearful of being cast as “tax and spend liberals” as 2012 draws closer, Democrats have allowed Republicans to win the deficit debate, with the argument having shifted from “whether to cut” to “how much to cut.”

For example, a growing number of Democrats — including senators Mark Pryor of Arkansas, Kent Conrad of North Dakota and Mark Udall of Colorado — are standing with the GOP in demanding that any increase in the debt ceiling be tied to significant deficit-reduction measures.

This effectively precludes the possibility of the government investing additional funds in job creation. Apparently, these Democrats — along with nearly all Republicans — fail to realize that while large deficits are a threat to the economy in the medium and long term, a high unemployment rate is a much more immediate danger.

The GOP and a growing number of Democrats also ignore two other fundamental facts: that cuts in government spending in the name of deficit reduction are likely to harm the weak economic recovery — and that economic growth is actually the best way to reduce the deficit. As the New York Times’ David Leonhardt points out, if the economy grew half a percentage point faster than forecast each year over the next two decades, the country would need to cut its deficits by 40-50% less than currently estimated.

The “Beltway bubble”

The Democrats’ refusal to lead, coupled with Republicans’ ideological hostility to using the government to jump-start the economy, goes a long way toward explaining Washington’s failure when it comes to jobs. However, deep-seated socioeconomic realities also help explain why our leaders have given up on the unemployed.

For example, the wealth of most members of Congress makes it impossible for them to relate to the millions of Americans who are out of work. Consider that the median 2009 wealth of House members in the last Congress was $765,000, while the median wealth of senators was $2.4 million, according to the Center for Responsive Politics.

Likewise, the “Beltway bubble” insulates Washington’s army of aides, lawyers, lobbyists and journalists from the plight of the unemployed. While much of the country is still struggling with the fallout from the Great Recession, the Washington region emerged relatively unscathed. At 5.8%, the region’s unemployment rate is the second-lowest among the country’s major metropolitan areas.

In addition, the D.C. area is the country’s wealthiest region, with the Washington suburbs accounting for five of the country’s ten richest counties. Six miles from Washington, Falls Church, Virginia, has a median household income of over $113,000. To its north, Loudoun County, Virginia, has a median income of $112,000, while the 1.1 million residents of Fairfax County, Virginia, have a median household income of $104,000.

Thus, the country’s politicians — along with the legions of aides who assist them, lobbyists who cajole them and journalists who report on them — are effectively divorced from the painful economic reality that confronts much of the rest of the country. This makes it all too easy for them to focus on reducing the deficit while paying no heed to the millions of Americans unable to make ends meet.

For their part, the unemployed are effectively powerless in Washington. Politicians can easily ignore their concerns because they have no lobbyists working on their behalf, and they clearly can’t fatten anybody’s campaign coffers.

The peril of ignoring the unemployed

However, President Obama and Congress ignore the legions of unemployed at their own peril. With the economic debate dominated by talk of deficits and spending cuts, it seems Washington has forgotten that the biggest factor in the outcome of elections is always the economy. Indeed, political science research shows an almost perfect correlation between increasing voters’ incomes and earning their votes.

If they fail to create a sustainable recovery and substantially reduce the unemployment rate, incumbents — from President Obama on down — may very well find themselves out of a job come November 6, 2012.

Editor’s Note: This feature was updated on May 6, 2011.

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Takeaways

Even if the economy continues to create jobs at the relatively brisk pace it did in April 2011, it would still take the better part of a decade to return to pre-recession employment levels.

Using the government to spur economic growth would force Republicans to acknowledge that the government can indeed play a positive role in the economy.

The Democrats' inaction when it comes to creating jobs is explained by simple political cowardice.

The wealth of most members of Congress makes it impossible for them to relate to the millions of Americans who are out of work.

If they fail to create a sustainable recovery and substantially reduce the unemployment rate, incumbents may very well find themselves out of a job come November 6, 2012.