Obama needs to focus on the worker

November 08, 2008|By JAY HANCOCK | JAY HANCOCK,jay.hancock@baltsun.com

It's easy to look like a hero when you walk through the door, say corporate crisis managers.

But then it hits you: You have to run the dump. It's worse than you thought. You can't blame the previous CEO forever.

The turnaround manager named Barack Obama is getting his reality check even before he gets the keys.

Since August, U.S. employers have shed 524,000 jobs, the government reported yesterday. That's the worst two-month loss since right after the 2001 terrorist attacks.

Before that, you have to go back to the 1982 recession to find a poorer performance.

October unemployment was 6.5 percent, the highest in 14 years. The stock market, which seemed to be anticipating an eventual recovery last week, changed its mind. And consumer confidence, which Obama knows is key to reversing economic decline, is at a record low.

Sure, we've seen downturns before. Bad ones.

Obama's problem, however, is that the government's anti-recession medicine is already nearly gone, at least in traditional doses.

Washington fights downturns by cutting taxes, increasing government spending and lowering interest rates.

But personal income taxes are already far lower than in other developed nations, thanks largely to cuts championed by President Bush in 2001 and 2003.

Invading Iraq, the Medicare drug plan and bailing out bankers have caused spending to go off the rails.

Tax cuts and spending binges since Bush took over have doubled the federal debt to its highest level as a portion of the economy since the 1950s, when the country was paying off World War II loans.

As for interest rates, Ben S. Bernanke has already cut the short-term price of money to match a 40-year low reached in 2003.

The last time short-term rates sank to 1 percent, recession had been declared more than a year previously.

Now we're at 1 percent, and the National Bureau of Economic Research hasn't even made it official yet. That suggests we're early in the game.

Rates will almost certainly fall further. But you can't go below zero without abusing mathematics or paying people to borrow money, neither of which is likely to happen.

Stocks and struggling banking and car companies symbolize the crisis. But the heart of the matter is the consumer, who accounts for 70 percent of the economy. Consumers are in rougher shape than at any time since the early 1980s.

A week ago the Labor Department reported that September wages and salaries for U.S. workers, adjusted for inflation, plunged almost 2 percent compared with a year previously.

It was the second-worst showing in at least eight years.

Sure, last summer's energy-price surge made results look especially bad. Gas and oil costs have plunged since then, representing one of the few pro-consumer developments of the economic implosion.

The larger point is that worker pay is in the dumper.

Inflation-adjusted wages and salaries have been falling for years. (Total pay is up because increasingly pricey, employer-paid health insurance is counted as part of compensation. But you can't make a down payment on a Chevy with your medical plan.)

In the 1990s, stock market profits helped consumers make up for miserable pay. In the 2000s, soaring house prices served the same purpose. But stocks are back at 1997 levels. The home-equity ATM has been junked.

Consumers are more heavily indebted than ever. And they're beginning to lose jobs in herds.

Yesterday's economic reports may even understate the distress. Many analysts suspect the Labor Department of lowballing recent job destruction. The unemployment rate doesn't count millions who want to work but are not looking anymore because of poor prospects.

In any case, the U.S. economy has a poor record of emerging from downturns.

Remember the "jobless recovery" of the early 1990s? Employment growth after the 2001 recession was among the worst on record. We're probably looking at more of the same after this recession officially ends.

The first chapter in the crisis manager's textbook is about scrapping conventional wisdom.

That's why you bring in a new guy, to explore approaches that once seemed radical.

Taxes can't go much lower in an Obama administration. Neither can interest rates. But it looks like the third anti-recession weapon - government spending to employ people and aid the jobless - is about to exceed anything that once seemed prudent.

If Obama doesn't get the country back on fiscal track after this crisis resolves, we're in trouble.

But given the magnitude of the problems and the size of the package already handed to Wall Street, temporarily overdosing on consumer medicine is the only move he has.

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