August 7, 2022

News Analysis: War of Ideas on U.S. Budget Overshadows Job Struggle

Republicans said the slow pace of hiring in May underscored the need for sharp cuts in federal spending and regulation to spur corporate investment. They have refused to increase the debt ceiling, the maximum amount the government can borrow, without an agreement to make such cuts.

They argue that Democratic efforts to revive growth through public spending programs have failed as the economy remained weak and unemployment high almost two years after the end of the recession.

“You talk to job creators around the country like we have,” House Speaker John A. Boehner said Friday. “They’ll tell you the overtaxing, overregulating and overspending that’s going on here in Washington is creating uncertainty and holding them back.”

Democrats counter that Republicans are unnerving businesses by sowing uncertainty about the government’s willingness to pay its debts, and that immediate budget reductions would cut jobs and undermine growth.

Since the end of the recession in June 2009, private employers have added roughly a million jobs. During that same period, however, governments have cut 1.1 million jobs, underscoring the impact of reductions in public spending.

“Republicans in Washington are making it harder to create jobs,” said Representative Sander Levin of Michigan, the top Democrat on the Ways and Means Committee. “They threaten to shut down the government, they threaten to default on our nation’s debts and they threaten the jobs of teachers, police officers and many others. Creating this kind of uncertainty hurts our economic recovery.”

Almost 25 million Americans could not find full-time work during May, but their plight has not gripped Washington. Neither party has suggested that the issue deserves the kind of urgent response that might require ideological compromises.

The Federal Reserve, charged with minimizing unemployment, has indicated that it intends to stand back, waiting on further evidence about the health of the economy before considering new steps to stimulate growth. The central bank is immobilized by the same political forces as Congress, with conservative members of the Fed board and outside critics demanding that it withdraw the money it has pumped into the economy, and liberals arguing for additional aid.

The deadlock actually means that the government will steadily reduce its support for the economy during the second half of 2011. The Fed will complete a plan at the end of June to bolster growth by buying the last of $600 billion in Treasury securities. More than 80 percent of the president’s $800 billion stimulus plan has been disbursed. Last year’s package of $225 billion in tax cuts and jobless benefits will expire at the end of the year.

Both parties seized on the latest economic data as evidence for their positions on deficit reduction, an issue that has displaced jobs as the focus of public debate.

The government must borrow money to pay its bills, the amount it can borrow is set by Congress, and the present limit — the debt ceiling — will be reached in early August. Since taking control of the House and gaining Senate seats last year, Republicans have seized on the need to raise the debt ceiling to demand a broader deal on deficit reduction, including immediate cuts in spending.

Representative Jeb Hensarling, a Texas Republican, said the “administration doesn’t understand that one of the biggest impediments to job creation today is the lack of confidence, a lack of confidence in the future that comes from an administration where regulators have gone wild, from an administration threatening the largest single tax increase in America’s history and an administration that doesn’t take seriously the debt that is threatening our job creators.”

Democrats have been forced into the defensive argument that threatening not to raise the debt ceiling is irresponsible and will certainly shake the confidence of financial markets.

They argue that public spending programs like the stimulus and expanded jobless benefits have provided an incomplete but important response to the devastation wrought by the financial crisis. Representative Chris Van Hollen of Maryland, the top Democrat on the Budget Committee, noted that employment has risen for 15 consecutive months.

“With millions of Americans still out of work and families struggling to make ends meet, there is still more we must do,” said Mr. Van Hollen, a participant in bipartisan budget deal talks. “Unfortunately, Washington Republicans have failed to make job creation a priority. In fact, economists of every political stripe have said their budget would threaten our fragile recovery.”

Republicans have also embraced the argument of business trade groups that regulation is impeding economic growth.

“Today’s increase in the unemployment rate underscores the need for dramatic action to break down barriers to job creation. First among these are unnecessary regulations,” said John Engler, president of the Business Roundtable. “We need action by government agencies to clear out obsolete rules and streamline permitting to reduce delays and impediments for companies to invest and grow.”

“The private sector is the only hope for future job creation,” he said.

House Democrats have tried to seize momentum by rolling out a series of bills intended to bolster domestic manufacturing and construction under the rubric of “Make It in America.” The measures promote initiatives like high speed rail and other public transit projects, call for a permanent research and development tax credit and direct the government to develop a national manufacturing strategy.

But the proposals have little chance in the Republican-controlled House and represent a long-term view rather than an immediate fix for unemployment.

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