Rebuilding a National Consensus for Economic Reform

The Washington politics around America’s economic policies has become dysfunctional. In Barack Obama’s first 18 months, the broad support for Democrats expressed in the 2006 and 2008 elections, the big congressional majorities they produced, and the public’s loud demand for change from the Bush era were enough to enact major stimulus, followed by health care and financial reforms. The full-throated stimulus, both monetary and fiscal, halted the economy’s sickening slide towards depression, but they were not enough to ignite strong, self-sustaining growth. So now, with the economy stuck in a holding pattern of high unemployment and slow growth, and GOP attacks dominating new-media airwaves and bandwidth, most Americans’ patience with the Democrats’ economic management has worn very thin. The national consensus for strong action on the economy has unraveled, and the administration finds itself unable to enact additional measures.  

Last week, Simon, Jake Berliner and I sounded an alarm in a new NDN memo: If we hope to salvage the next decade, we will need a new policy and political framework. For the long-term, this strategy should focus on two powerful structural changes now reconfiguring the economy, globalization and the spread of information and Internet technologies. Even more urgently, however, Congress needs to address the jobs crisis.  

There’s no use in fooling ourselves that anytime soon, healthy job creation will kick in on its own. The economic mistakes of the last administration took care of that: Financial crises always lead to recessions that are unusually deep and job-destroying; and those steep downturns typically are followed by unusually shallow and slow recoveries. And the destructive forces that drove the original crisis are still with us. A prime reason that business lending and investment remain weak, for example, is that our large, financial institutions still hold hundreds of billions of dollars in the same financial instruments that brought on the crisis. Household spending also remains weak, and persistent high unemployment isn’t the only reason. In addition, home values continue to sputter and foreclosures are still running several times their normal levels, eating away at the financial security and economic well-being of most Americans.  

NDN’s new prescription calls, first, for tough love: It’s time to level with Americans about what precisely is happening with their economy, in order to “create a public logic for sustained new public and private investment in the years ahead.” Then, we turn to five steps which Congress could take this year to help jump-start new job creation, now. 

• Provide more federal funds to state and localities, so American students and their parents don’t face the prospect of 300,000 fewer teachers in classrooms this fall, and comparable downsizing for police and other local and state agencies.

• Reduce the cost for companies to create more jobs by cutting the payroll tax.  A cut on the employers’ side would directly spur job creation, while a cut on the workers’ side would do it more indirectly, by expanding demand. These payroll tax cuts should go unfunded for one year, providing a little more stimulus, and then we should pay for them by phasing in a carbon fee. A carbon fee would also represent the most serious step to address climate change ever undertaken here – and it would stimulate more jobs by spurring the development and adoption of low-carbon technologies.

• Enable more Americans to gain the knowledge and skills required for most new jobs, especially the computer and Internet-related skills needed to perform well in workplaces dense with those technologies.  A big, first step: Federal grants to community colleges to keep their computer labs open and staffed on evenings and weekends, so any adult can walk in and receive free instruction.

• Help to re-stabilize house values by bringing down home foreclosure rates. Until the housing market returns to more normal conditions, most Americans will feel less well-off, stifling normal consumer spending. Falling home prices also make it harder for many people to move to where work is available or wages higher. The first step here: Create a new federal loan program for lower- and middle-income people whose mortgages are in trouble.

• Jumpstart new business formation, because so many of the economy’s new jobs are created by young businesses. And don’t start from scratch – we can use current SBA, EDA and other agency programs to create new “acceleration centers” that could bring together entrepreneurs and venture capitalists, connect new startups with opportunities provided through the government’s new green economy and export initiatives, and then connect job seekers with those companies.

We can put millions more Americans back to work. All that’s lacking is the national will to address the factors and forces now blocking it. If the President spends the month of August working to rebuild that will, Democrats could enact a serious jobs agenda in September and October – and do a lot better in November than anyone’s polls suggest today. 

The full memo, entitled "Towards a New Economic Strategy for America – Steps We Can Take in 2010" by Simon Rosenberg, Rob Shapiro and Jake Berliner, is available here.