The Priority Must be Creating Jobs; Not Balancing the Budget

By William E. Spriggs


The Organization for Economic Cooperation and Development (OECD) issued its economic outlook for the modern, democratic, industrialized economies at its annual meeting of member nation ministers.  It was mostly gloom. 

The European members of the OECD are mired in a deep economic slump.  In 2012, the European members had a drop in Gross Domestic Product (the combined value of goods and services produced) of 0.5 percent and is projected to have that same poor performance in 2013.  Behind those numbers, however, are the lives of real people.  When an economy shrinks, it means there are fewer jobs and that means growing stress on the day-to-day lives of people.  Like in the U.S. the loss of job opportunities is being felt most keenly by young workers.

The OECD is a post-World War II creation made up of the “free world” democracies that was designed to coordinate their economic activity and provide the best case for the superiority of market-based economies over their, then, communist competition.  It is headquartered in Paris, around the home of the Rothschilds, who as Jews, were forced to flee Paris ahead of Nazi Germany’s occupation of France. 

The Rothschild mansion became U.S. headquarters when American troops led the efforts to liberate France.  So the OECD also took on the mission to prevent the descent into the Global Depression that strained economic life and gave rise to extremists governments in Spain, Italy and Germany that launched World War II.

For an organization with such a history, it is surreal that five years into this century’s great economic downturn, the OECD reports that the median OECD member nation has output that is 5 percent below its full employment level. The U.S. and Japan continue to run fiscal policy-the choices of taxes and expenditures of the government-that is stimulative compared with the average for the OECD. 

In plain English, that means the United States and Japan are running government deficits that are, when compared with the size of their economies, bigger than the average for the OECD.  The European nations, on the other hand, are running fiscal policy that is more austere than the OECD average.  In plain English, they are coming closer to balancing their government budgets. 

Well, the United States and Japan are having economic growth that is better than the OECD average, with the lower unemployment rates than the European nations that have slower growth and higher unemployment. Despite these clear facts and the poor performance of the democratic industrialized nations in the face of this Great Recession, the discussion continues on whether governments should be “consolidating,” shrinking their government expenditures.

In the face of clear evidence that governments need to be focused on jobs, there is the misguided view that somehow governments can instead concentrate on balancing their budgets in the hope that somehow, or another, the continued decline will correct itself.

The OECD also rolled out an international public opinion poll showing that around the world, people want their governments to concentrate on job growth.  Unfortunately, their survey also revealed that many people are miseducated on economic problems the world is facing.  Many people believe, despite the clear evidence, that balancing government budgets in economies with high levels of unemployment and weak demand for goods and services, will somehow help lower unemployment.

Another OECD report showed that income inequality continues to grow in OECD nations.  That report did show, however, that the safety nets put in place to respond to last century’s Great Depression are working well to mitigate the income losses of those at the bottom; so, but for those programs, inequality would have been worse and poverty would have climbed more. 

Oddly, despite clear evidence those programs are important, the call for “consolidation” continues-aimed at rolling back the protections those safety nets have provided.  This is the equivalent of tearing down the levees after they prevented a flood.

The OECD reports are important because the chance to compare the different approaches countries have taken to address this global downturn help us understand what policies make sense and which do not.  President Obama can take some solace in that the United States has out-performed the OECD nations with healthier job growth and economic expansion.  But the rest of us should take no solace that the national debate is stuck on how quickly we can shrink our government deficit-which the OECD report shows can only be a chase to see if we can ruin our labor markets like Europe has.

The president continues to offer policies aimed at “consolidation” and “austerity” to show a poorly informed public that he is being reasonable with Republican efforts to mimic the bad policy of Europe.  We need the president to instead show he is “reasonable” in the sense of the term “reasoned”- someone offering policy on the basis of reason and sound evidence.  A reasonable set of policies would be a national debate on how we are going to create jobs.  That must be the immediate goal of policy.

William Spriggs serves as Chief Economist to the AFL-CIO and is a professor in, and former chair of the Department of Economics at Howard University.  Bill is also former assistant secretary for the Office of Policy at the United States Department of Labor.