"We've seen a real turnaround this year," Treasury Secretary John W. Snow said this week, "and the recovery is clearly solidifying." Not so fast, please.
Just as the administration was embarrassed in Iraq by prematurely stating "mission accomplished," so it may regret declaring economic triumph. Yes, consumers are still buying pretty vigorously and productivity is zooming. Low interest rates play a big role, and some credit may well be due to hundreds of billions of dollars in tax cuts directed mainly to the wealthy. The nation enjoyed a modest rise of 57,000 new jobs in September.
But there's still a "but" in the good news. Almost 2.6 million jobs have disappeared since President Bush entered office. The Congressional Budget Office estimates that the unemployment rate will remain above 6% next year, not including the 2.1 million long-term jobless who've given up looking for work. The normal, historical rate for creation of new jobs in an expansion is 250,000 to 300,000 a month -- a number out of reach in this "recovery."
Federal Reserve Chairman Alan Greenspan was cautiously optimistic Thursday at the annual meeting of the Securities Industry Assn. But he emphasized that as baby boomers retired and drew on Social Security and Medicare, the budget deficit, which is projected to hit $400 billion in 2004, could have long-term "notable, destabilizing effects on the economy." The Social Security and Medicare programs are likely to run a deficit of almost $100 billion in the next decade. Add tax cuts that kick in over the next few years and fiscal meltdown is a risk.
The higher the deficit, the more the Federal Reserve has to raise interest rates to attract foreign investment to pay for it. The higher interest rates go, the less business will borrow money for investment that helps create jobs. One reason the economy boomed under President Clinton was that low deficits allowed Greenspan to keep down interest rates without fear of triggering inflation.
In an election year, Congress is not going to reverse its tax cuts, but one immediate step it should take is to renew temporary federal unemployment benefits beyond the current Dec. 31 deadline. In California alone, more than 450,000 workers have exhausted their state benefits. Millions of unemployed workers nationwide are in danger of being left without financial assistance. Benefits are a fast and effective way of pumping money into the economy since unemployed families spend the funds immediately on necessities rather than socking them away. Congress shouldn't wait until after Christmas to extend benefits, as it did last year.
Providing unemployed workers with funds to feed their families and look for new jobs could help turn a fragile economic revival into something more robust.