Markets tumbled and pundits panicked last week when the latest U.S. monthly jobs numbers turned out lousy.
But during a visit to the first-ever White House Online Personal Finance Summit on Wednesday, Council of Economic Advisors chairman Austan Goolsbee rightly pointed out that while we're in a very "troubled jobs market," one lousy jobs report doesn't make or break the recovery.
The event, which included 20 or so fellow financial writers and editors from sites across the Web, gave us access to Goolsbee, National Economic Council director Gene Sperling, Chief Technology Officer Aneesh Chopra, and, in a surprise visit, even President Obama himself.
So what is going on with the economy? White House officials shared their opinions, but let's set the stage first.
We have a long way to go. The worst financial crisis since the Great Depression set our economy much farther back from full employment than previous recessions, as pictured below:
Source: Calculated Risk.
What's more, consumers are reluctant to spend because they're unemployed, indebted, or unconfident. Without their demand for products, businesses are reluctant to hire, which perpetuates the unemployment-debt cycle. That catch-22 explains why the recovery is taking so long.
The traditional response would be to reduce consumers' debt burden (perhaps through mortgage modifications and modest inflation) while boosting demand (with stimulus spending and tax cuts). That's what the 2009 stimulus bill did, and it almost certainly helped to prevent a Depression.
But we can't count on a repeat performance, beyond a few modest ideas like a new payroll tax cut. Perhaps the Administration doesn't think that any plan it might conceive could muster bipartisan support in Congress, or perhaps it doesn't believe that additional stimulus would help. Whatever the case, it's clear from our meeting with Administration officials that they aren't gunning for significant additional short-term fiscal juice to accelerate the recovery.
What are they gunning for?
It's possible to take a more charitable view than economics commentator Ryan Avent's interpretation, which argues that the Administration has essentially given up on the need to boost aggregate demand in search of that ever-elusive confidence fairy. Instead of the sort of "boom-and-bust" consumer- and construction-driven recovery of 2001 -- remember all that "it's patriotic to shop" hoopla? -- the goal this time is to build a recovery on business investments that improve American economic competitiveness, particularly in IT and alternative energy.
Goolsbee suggested that "business investment is [also] demand-side." The United States' first-ever CTO, Aneesh Chopra, discussed with us many of the intriguing innovations that the Administration is partnering with firms like Blackstone (NYSE: BX ) to sponsor. Energy Deputy Assistant Heather Zichal described loan guarantees to help finance production plants for alternative energies and advanced batteries.
From a long-run perspective, this makes complete sense. I don't know about you, but every time I read an article in 2009 reminding us that consumer spending makes up 70% of the economy, I shuddered. That doesn't seem sustainable. As a country, we need to get back in the business of making and exporting, rather than borrowing and shopping.
But it's also true that in the long run, we're all dead. By the Administration's forecast, we'll average 9.3% unemployment this year. It'll take at least until 2015 for unemployment to drop below 6%. Even for that to happen, the Administration is counting on the private sector to step up its game by investing enough to make the recovery self-sustaining.
I'm stumped. With interest rates at rock-bottom lows, large numbers of people looking for work, and the economy screaming for investment, it would make economic sense to increase federal spending on high-bang-for-the-buck investments like education, R&D, and infrastructure in the short term, even while prodding the private sector to do the same.
But the political climate in Washington could be summed up by a comment from Goolsbee: "The government has shifted out of rescue mode to transitioning to private sector growth." Fiscally, the choice in the bipartisan deficit negotiations is between Republicans' desire for massive spending cuts and the more gradually phased-in deficit reduction plan that President Obama and Gene Sperling spoke in favor of, arguing that, "When you have to lighten the load of an airplane, you don't kick out the engine."
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