Transportation, including renovation of our country’s roads, bridges and railroads; creation of a high-speed rail network linking our major cities and commercial hubs; development of “smart” highway technology to expand the capacity, speed and efficiency of our major roadways; and development of high-tech short-haul aircraft. A national information network to link every home, business, lab, classroom and library by the year 2015. To expand access to information, we will put public records, databases, libraries and educational materials on line for public use.
Putting People First, Clinton-Gore 1992
For a Washington policy wonk like me, a bellwether weekend day of the coming spring can get very interesting to Tweet the outlines of this article over brunch, especially the day break after a weary Republican House of Representatives passed a bill numbered H.R. 1, a continuing resolution (CR) to keep the government open for the rest of the 2011 (or current) fiscal year which began on October 1, 2010, along partisan lines, 235-189.
The White House has its cuts slated for FY 2011 worth about $100B tabulated in a document on pages 2-6 on the web site of the government printing office. The majority Republican House presented its own version of the $100B in savings for the H.R 1 debate and succeeded in passing about $60B of them in the wee hours of the Saturday of the President’s Day weekend and on the eve of the next fiscal year’s budget battle. The Democrat Senate is yet to debate H.R 1 for it to become law, hopefully by March 1st of this year, to keep the government open. The political contest now shifts to the United States Senate which is not yet Republican and this is where the plot thickens in a very Washington style.
The numerical reality of America’s budget is that it is about $4 trillion every year out of a total current economic size of about $12 to $15 trillion or in the range of about 27-33 per cent of government expenditures of the total national output or Gross Domestic Product (GDP). Meaning, the government in the United States produces about a third of the national output, and this can be seen as a snapshot on the web site of the Bureau of Economic Analysis and from the web site of the back issues of the U.S Treasury’s Monthly Treasury Statement (MTS) where the actual numbers of government spending are available. Correspondingly, inflation hovers in the range of 1-5 per cent change year-over-year and unemployment in the range 10-4 per cent (10 per cent high during recessions and 4 per cent low during growth periods) as can be seen from the table below which includes unemployment and inflation data from the Bureau of Labor Statistics (BLS). This is the expected (in contrast to the actual) macroeconomic business cycle that America has become habituated to like since 1993. The concern now, however, is that at $15-16 trillion GDP, unemployment would be about 7-8 per cent in the future, not 4-6 per cent and inflation would be around 5 per cent, not between 2-3 per cent.
The political battle is not about the 2 per cent higher unemployment or the potentially 2 per cent higher inflation per se, though both these numbers are politically inflammatory. America, quite appropriately, has always tolerated higher unemployment since the Reagan recovery of 1985 in favor of stable prices but the arcane economic debate is about how prices were kept stable, because that matters a lot for why we are where we are today in terms of the uncertainty of middle class life in the United States and the growing income gap among the upper income earners and the rest around the world.
Government spending as a percentage of national output, with the exception of the years 1996 through 2001, the period of the Clinton economic bubble when financial asset prices rose, the paper wealth of American households rose more than their pay raises and continued to do so ever after until 2007-2008 when the housing bubble (that followed the collapse of the stock bubble in 2000-2001) also collapsed. Real wealth creation is what America is about. And this is where the economic stability of not only the United States but any country resides. However, the predilection for propping up the Clinton era is as tempting to today’s economic policymakers in the urban wilderness of the financial markets of the world as the temptation of Jesus Christ by Satan in the wilderness of the desert because it feels good while it lasts to build pyramids of financial market fluff over facades of real value.
It is easier to inflate financial assets by having more money chase the relatively fewer financial assets by encouraging more people to own them in lieu of the risk of inflating real things which do indeed produce inflation sooner than later. Financial asset price inflation became a shock absorber for real inflation, delaying its onset, not avoiding it. Little thought was given to stabilizing the inflation of real things that real people produce and consume every day, also known technically as structural inflation, while growing the economy at the same time. Inflation is always a real phenomenon and economic ignorance cannot be masked by lubricating it with money supply. At some point, the fat lady of having to do real work for a living will have to sing and this is the predicament of America today. Hence, the higher structural unemployment to contain prices, because one of the two, inflation or unemployment, must always yield in the short run if the other is to be managed, unless economies figure out how to balance both at tolerable levels smoothly over time.
Lowering structural unemployment requires broadening the base of employment. To maintain stable prices while doing so requires technical change and the resultant higher productivity for a stable supply of resources, especially as more and more consumers around the world want to consume similar things and enabling it becomes the purpose of money supply. Yet, this is an unanswered question is economic science because technical change has not yet been explained by both the theory and practice of economics. To economists, where they stand today, it happens when it does.
Still, given the level of technology in today’s society and opportunities to expand the base of real investments applying that technology to change the economic structure to cause growth under stable prices is feasible. It only requires political and policy will. It is not happening because America has become addicted to raising the national output without having to do as much work since 1993 ― because borrowing to consume is easier than borrowing to invest and work. “Putting People First” has not happened yet.
President Obama could get his money of about $52 billion for public investments in high speed rail (HSR) in the Fiscal Year 2012 budget if he restrains himself from vetoing the H.R 1 cuts of about $60 billion by the Republicans in Fiscal Year 2011. The $52 billion, along with future revenue losses to the Treasury in corporate tax cuts and other public investments before November 2012, however, must create jobs within the next 18 months to establish a trend decrease in unemployment from the current level of 9 per cent to about 7 per cent. Inflation is low enough that it will not be a worry, provided jobs are created to accompany the higher growth forecast of the Federal Reserve.
The end result, as was during the ‘90s, could be that the Republicans will be in the majority in both chambers of the Congress after November 2012 in a bargain for President Obama to be reelected for a second term in the Oval Office. A chastened and disciplined Republican Congress, after the Tom Delay and Abramoff debacle, is a better bet for the American people to steadily reform government over the next decade, given that, per the Constitution, the Congress controls the purse strings and to restore the constitutional balance of powers, budget year after budget year, as long as a commitment is made now by Washington to a vision of the outcome.
It could even ease the fears of foreigners (and hence Wall Street) about the high-wire act of US debt and the dollar, with the total national debt being currently engineered in normative economic forecasts to be nearly equal to the national output for the foreseeable future, meaning America intends to maintain its total indebtedness at a level equal to its annual earnings, removing any cushion to withstand the type of negative shocks that occurred in the period 2000-2002.