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One of the Big Losers in the Debt Ceiling Deal – Jobs and the Unemployed

August 2, 2011

“It’s the economy, stupid” was a phrase coined by former President Bill Clinton’s campaign strategist James Carville to provide focus in Clinton’s successful 1992 presidential campaign. The phrase refers to the notion that Clinton was a better choice because George H. W. Bush had not adequately addressed the economy, which had recently undergone a recession.

For President Barak Obama never has Carville’s famous phase been more appropriate. A factor that could result in the  “shellacking” of the 2010 midterms elections being even greater in 2012 elections for Obama and the Democrats.

And while President Obama promised immediately after the Senate passed the debt bill by a 74 to 26 vote to fight for “new jobs, higher wages and faster economic growth” in the coming months, the debt deal will make delivering on these promise even harder.

“We can’t balance the budget on the backs of the very people who have borne the brunt of this recession,” Obama said. “Everyone’s going to have to chip in. That’s only fair.”

Yet, the debt ceiling plan, while preventing a U.S. default, which would have taken us into the economic abyss, is likely to provide additional economic hardship.

Many economists are saying the agreement could endanger the anemic economic recovery — because of both what the deal includes and what it doesn’t. The government will cut back on spending, while failing to renew measures, such as a payroll tax cut, that have put money in consumers’ pockets.

The debt deal represents a striking reversal from a year ago, when jobs were atop the government’s agenda and both parties were arguing over who had the best plan to increase employment.

“Why would you want to impose restraint on an economic recovery that’s already fragile?” asked Josh Feinman, chief global economist at Deutsche Bank Advisors. “You’re removing spending power from the economy at a time when it needs it. That’s likely to make the economy weaker.”

New York Times columnist and Nobel Prize-winning economist Paul Krugman said, “These are cuts that are going to hit while the economy really can’t take them. And notice there is a lot of stuff that everybody sort of assumed would be taking place that is not in this bill, like the extension of unemployment benefits.

Asked Sunday night why spending to help the unemployed had been left out of the deal, a White House official said, “because it had to be part of a bigger deal to be part of this.”

With the latest unemployment rate at 9.2 percent, there are approximately 25 million unemployed Americans. It is unclear how many of those individuals will not be eligible for an extension in unemployment support.

“The only thing you can say is that the drift of policy was already in the wrong direction,” Krugman continued. “But the fact is we are doing a terrible thing. We are repeating all the mistakes of the 1930s. We seem to be doing our best shot at recreating the Great Depression.”

Krugman further paints a pessimistic picture, “We have 9 percent unemployment. These spending cuts are going to worsen unemployment. It’s even going to hold the long-run fiscal picture because we have a situation where more and more people are becoming permanent long-term unemployed. … I have nobody I know who thinks the unemployment rate will be below 8 percent at the end of next year. With the spending cuts it might be above 9 percent at the end of next year. There is no light at the end of this tunnel.”

Mohamed El-Erian, CEO of officer of the international bond fund giant Pacific Investment Management Co (PIMCO), said spending cuts will only exacerbate the unemployment situation.

“So unemployment will be higher than it would have been otherwise, growth will be lower than it would be otherwise, and inequality will be worse than it would be otherwise,” El-Erian said.

El-Erian questioned the impact of discretionary spending cuts that will likely make up the short-term budget savings in any final agreement.

“We have a very weak economy, so withdrawing more spending at this stage will make it even weaker,” El-Erian said.

The jobs of federal employees may be at risk also. While the deficit reduction plan does not yet mention federal workers, caps on federal discretionary spending could affect budgets that pay our public employees.

It is now imperative that there be an all out refocus on developing programs that will rapidly put millions of Americans to work.

Political strategist Robert Creamer states, “For about $220 billion you could put over two million Americans to work for two years — and massively lower the unemployment rate.”

In response to a GOP and extremist Tea Party controlled House likely to block such spending, Creamer suggests, “We need to propose a concrete, practical jobs program that is completely understandable and directly addresses the number one issue on the minds of ordinary Americans — and then we need to make our case to the American people.”

Which means that there are no short cuts and that this task is far from being easy. But, the road to success lies in what many of us know already and it will mean more of it – organize, organize and organize. And, never forget that, “It’s the economy, stupid.”

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