FacebookTwitterGoogle+RedditEmail

The Invisible Recession

Millions of Americans are still suffering from the Great Recession. People across the country are struggling to find jobs, and families nationwide have had banks foreclose on their homes. It is against this backdrop that President Obama gave his speech on the budget.

While he did make the point that the wealthy can afford to pay more taxes, the speech confirms the administration’s agenda of deficit reductions. But with an 8.8 percent unemployment rate, a budget agenda that stresses jobs is what the nation needs.

To understand why the focus should be on jobs instead of deficit reduction, it is important to remember how we reached this point.

Two years ago the economy was in a free fall as a result of the collapse of the Wall Street-fueled housing bubble. In the four months between December 2008 and April 2009 alone, the economy lost more than 3 million jobs; it would go on to lose nearly 5 million more.

Almost $8 trillion in housing bubble wealth disappeared as house prices plummeted.

The private sector lost more than $1.2 trillion in annual demand, roughly half of this due to lost construction demand and the other half due to lost consumption demand.

President Obama rightly proposed a second stimulus package — the first was passed in February 2008 and signed by President George W. Bush — to try to make up for lost demand from the private sector.

Government stimulus was the right path because private sector spending would not increase on its own. There is no magical potion that can somehow generate $1.2 trillion in new demand from the private sector alone. Businesses invest and hire when they see demand for their products. They all had huge excess capacity in 2009; this meant that there would be little new investment.

Similarly, consumers were heavily indebted now that they had lost so much housing wealth. This meant that they would not consume.

If the government did not spend money, no one was going to. This would have meant high unemployment rates long into the future, just as happened during the Great Depression.

The stimulus package helped to reverse the economic decline, but it was not nearly large enough. The package came to roughly $300 billion a year in tax cuts and new spending, roughly one-quarter the size of the shortfall created by collapse of the housing bubble. And much of this stimulus faded out by the end of last year.

This is where President Obama’s plan should have stepped in to make up for the lack of demand in the economy. Spending by the government has, in the past, helped to stimulate demand.

But instead of explaining to the public the need for the government to make up the spending gap until the private sector recovers, President Obama is now pushing the line from Wall Street that we have a huge deficit problem. Remarkably the same people who wrecked the economy in the first place are again dictating our country’s economic policy.

The reality is that cutting the deficit means cutting demand in the economy and fewer jobs. There is no storeowner or factory manager anywhere in the country who is going to hire people because the government reduced its deficit.

President Obama is apparently prepared to abandon the tens of millions of unemployed and underemployed workers who are the victims of Wall Street’s recession in order to please Wall Street bankers and Washington pundits. This is not a good day.

DEAN BAKER is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on CNN.

More articles by:

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

April 23, 2018
Patrick Cockburn
In Middle East Wars It Pays to be Skeptical
Thomas Knapp
Just When You Thought “Russiagate” Couldn’t Get Any Sillier …
Gregory Barrett
The Moral Mask
Robert Hunziker
Chemical Madness!
David Swanson
Senator Tim Kaine’s Brief Run-In With the Law
Dave Lindorff
Starbucks Has a Racism Problem
Uri Avnery
The Great Day
Nyla Ali Khan
Girls Reduced to Being Repositories of Communal and Religious Identities in Kashmir
Ted Rall
Stop Letting Trump Distract You From Your Wants and Needs
Steve Klinger
The Cautionary Tale of Donald J. Trump
Kevin Zeese - Margaret Flowers
Conflict Over the Future of the Planet
Cesar Chelala
Gideon Levy: A Voice of Sanity from Israel
Weekend Edition
April 20, 2018
Friday - Sunday
Paul Street
Ruling Class Operatives Say the Darndest Things: On Devils Known and Not
Conn Hallinan
The Great Game Comes to Syria
Jeffrey St. Clair
Roaming Charges: Mother of War
Andrew Levine
“How Come?” Questions
Doug Noble
A Tale of Two Atrocities: Douma and Gaza
Kenneth Surin
The Blight of Ukania
Howard Lisnoff
How James Comey Became the Strange New Hero of the Liberals
William Blum
Anti-Empire Report: Unseen Persons
Lawrence Davidson
Missiles Over Damascus
Patrick Cockburn
The Plight of the Yazidi of Afrin
Pete Dolack
Fooled Again? Trump Trade Policy Elevates Corporate Power
Stan Cox
For Climate Mobilization, Look to 1960s Vietnam Before Turning to 1940s America
William Hawes
Global Weirding
Dan Glazebrook
World War is Still in the Cards
Nick Pemberton
In Defense of Cardi B: Beyond Bourgeois PC Culture
Ishmael Reed
Hollywood’s Last Days?
Peter Certo
There Was Nothing Humanitarian About Our Strikes on Syria
Dean Baker
China’s “Currency Devaluation Game”
Ann Garrison
Why Don’t We All Vote to Commit International Crimes?
LEJ Rachell
The Baddest Black Power Artist You Never Heard Of
Lawrence Ware
All Hell Broke Out in Oklahoma
Franklin Lamb
Tehran’s Syria: Lebanon Colonization Project is Collapsing
Donny Swanson
Janus v. AFSCME: What’s It All About?
Will Podmore
Brexit and the Windrush Britons
Brian Saady
Boehner’s Marijuana Lobbying is Symptomatic of Special-Interest Problem
Julian Vigo
Google’s Delisting and Censorship of Information
Patrick Walker
Political Dynamite: Poor People’s Campaign and the Movement for a People’s Party
Fred Gardner
Medical Board to MDs: Emphasize Dangers of Marijuana
Rob Seimetz
We Must Stand In Solidarity With Eric Reid
Missy Comley Beattie
Remembering Barbara Bush
Wim Laven
Teaching Peace in a Time of Hate
Thomas Knapp
Freedom is Winning in the Encryption Arms Race
Mir Alikhan
There Won’t be Peace in Afghanistan Until There’s Peace in Kashmir
FacebookTwitterGoogle+RedditEmail