By Walter Alarkon - 11/17/09 11:00 AM EST
To address unemployment, the Obama administration and Democrats in Congress are considering new measures to boost the labor market. But those measures would cost billions more, adding to a deficit that hit a record $1.4 trillion in 2009 and is expected at least to equal that number in 2010.
Polls show that voters have concerns about both the jobless rate and the growing budgetary black hole, giving Democrats a headache heading into the midterm election year.
A Gallup poll last week found that the top problem for a plurality of Americans was the “economy in general.” After that and healthcare, the most frequently mentioned problem was the unemployment rate, cited by a fifth of Americans.
A much smaller percentage of those polled mentioned the budget deficit. Only 6 percent of Americans said that was the country’s top problem.
Still, Democrats expect the GOP to attack on both fronts ahead of next year’s election, and Democrats have signaled they aim to address both worries.
Senate Majority Leader Harry Reid (Nev.) told fellow Democrats that he plans to soon bring up a jobs initiative, and President Barack Obama announced a jobs summit to be held in December. Separately, Democratic leaders in the House also have turned their attention to the economy and job-creating initiatives.
On the deficit, the White House Office of Budget and Management (OMB) floated the idea last week of using hundreds of billions in money left over from the financial industry bailout to reduce the deficit. It also told department heads to prepare for a freeze in discretionary spending or a 5 percent cut in agency budgets in 2011.
But balancing the two goals may be a catch-22.
Creating jobs generally requires spending money or giving up revenue in the form of tax credits provided to businesses. And holding back on government spending can end up costing jobs.
Liberal economists have argued for months that Congress and the administration should worry more about job creation at the expense of the budget deficit as the nation tries to emerge from the worst recession since the Great Depression. The latest gloomy job figures have not made them change their warnings.
“The key to job creation ... is that you stimulate aggregate demand,” said Jim Horney, federal fiscal policy director at the left-leaning Center for Budget and Policy Priorities. “If you make cuts in federal spending that cut back on that demand significantly, that would have the effect of undercutting the effects made in [the stimulus] and so on.”
But conservative Democrats in the House and Senate are increasingly worried about the budget deficit. The huge budget deficits could also make lawmakers vulnerable; Blue Dog Democrats who promised fiscal responsibility will go to the polls in 2010 after a fiscal year in which a $1.4 trillion budget deficit was recorded.
The White House’s own economic estimates say that the jobless rate will remain in double digits into next year. The rate will average more than 9 percent in 2010 and more than 8 percent the year after, when spending in the $787 billion stimulus is scheduled to run out and the Obama administration’s proposed lower spending levels could set in.
Nouriel Roubini, the New York University economist who predicted the recession, said that the unemployment problem will keep worsening unless the government acts.
“There’s really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers,” Roubini wrote in a New York Daily News column Monday.
A number of ideas to help reduce unemployment have been floated, and all are likely to receive some attention before the end of the year.
Labor unions have called for more state fiscal aid to prevent public employee layoffs, infrastructure investment and small-business loans.
A group of Senate Democrats from the Northeast said they’re considering a work-share program providing federal funds to workers who cut their hours in order to retain their own jobs and save the jobs of colleagues.
Another bipartisan group of lawmakers that pushed an extension of unemployment benefits through Congress have said they plan another extension for workers who will otherwise lose benefits in 2010.