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Preventing the Next Jobs Crisis

We can’t beat Congressional obstructionism today, but we can in the future.

By Dylan R. Matthews

It’s become customary in American politics to respond to a crisis with a set of big measures intended to never let it happen again. Sometimes these measures are overreactions. Sept. 11 was followed by enormous expansions of homeland security spending that’d never pass a basic cost-benefit analysis, given the rarity of terrorism. Include the trillions of dollars spent on the occupations of Afghanistan and Iraq—which were at least ostensibly launched in reaction to the attacks—and the reaction looks even more ludicrous in scale.

Other times, the reaction falls short. The Dodd-Frank financial reform legislation gave regulators a number of new tools, notably “resolution authority” that can be used to orderly dissolve banks, that could come in handy in the event of another financial crisis. But there is reason to doubt its ability to prevent such a crisis in the first place, especially given the amount of discretion it gives to regulators who fell down on the job in the run-up to the 2008 crisis. Indeed, some regulators are already opposing tough capital requirements on banks, one of the main mechanisms the law gives regulators to prevent another crisis.

But whatever one believes about the response to 9/11 and the financial crisis, they were at least cases where lawmakers recognized that something had gone wrong and needed fixing. The crisis we find ourselves in today—namely, the appallingly high rate of unemployment, and especially long-term unemployment—isn’t like that. To liberals and most economists, it is obvious that the political system has failed to act decisively to pass programs (low-income tax cuts, infrastructure spending, unemployment benefit extensions, etc.) that are needed to increase aggregate demand and drive the unemployment rate down.

But the Republicans running the House of Representatives don’t recognize this as a problem. One can debate the reasons for their complacency. The most straightforward explanation is that House Speaker John Boehner and Majority Leader Eric Cantor are familiar with political science studies that indicate that the party controlling the presidency tends to do poorly when the economy does poorly, and thus understand it to be in their best interest to keep unemployment high. Indeed, some Republicans aides say they want to block Obama’s jobs bill not because it’s bad policy, but to deny him a “win.”

The GOP’s refusal to take the demand shortfall seriously is tragic on two levels. The first level is near-term. If unemployment is going to go down anytime soon, either the Federal Reserve has to get much more aggressive about monetary stimulus, or Congress has to pass another big fiscal stimulus package, such as the American Jobs Act proposed by the administration. With the Fed ruling out more asset buys in favor of less effective measures and the GOP blocking any fiscal stimulus, both options are basically off the table.

But the GOP’s demand denialism is also harmful for the precedent it sets. Boehner and Cantor are hardly going to be the last opposition leaders to realize that a growing economy is a “win” for the president. And in our political system, where even an opposition that is in the minority in both Houses can block legislation, that’s dangerous. We will have recessions in the future, and when we do, we can’t count on the president having 60 votes in the Senate and 218 in the House, such that it’s in the interest of everyone in power to help the economy recover. The deck is currently stacked against decisive action to aid recovery. It’s time to stack it in favor.

One way to do so would be to change Congressional procedures in general. The filibuster, for example, makes it unnecessarily difficult to pass any legislation, even when, as in 2009-10, the party in power has big majorities in both houses. But eliminating the filibuster, while an essential step, doesn’t help much in times of divided government. Another option without that problem would be to greatly expand the size of the government’s “automatic stabilizers”: that is, programs that automatically cut taxes or increase spending in times of recession. For example, former White House budget director Peter R. Orszag has proposed making the payroll tax rate a function of unemployment, so that it gets cut automatically when there’s a downturn, providing some automatic stimulus.

Bypassing Congress by making such measures automatic may seem anti-democratic. But it’s hard to care too much about procedural niceties when, as Yahoo! News has reported, families are resorting to cooking dandelions from their yards to keep from starving. Congress has demonstrated that it is incapable of being an effective steward of the economy. It’s time to stop trusting it to be one.

Dylan R. Matthews ’12, a Crimson editorial writer, is a social studies concentrator in Kirkland House. His column appears on alternate Wednesdays.

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