Republicans have made it official: "The wealthy" must be called "the job creators" in any debate about tax policy. Democrats are playing their own word games: Centrists insist the 2012 campaign shouldn't focus on "income inequality," or whether the worst concentration of riches since the Great Depression might have to do with what Paul Krugman has taken to calling the Lesser Depression. "Income inequality" is a downer, the centrists say; better to talk about "growth" and "prosperity."
But it's becoming increasingly clear that growth and prosperity are threatened by the declining share of income going to the non-wealthy over the last 35 years.
Friday's disappointing jobs report confirms that "the job creators" should be fired, since they only created 115,000 new jobs in April, which isn't even enough to employ new entrants to the workforce. And while the unemployment rate ticked down from 8.2 to 8.1 percent, that's only because more unemployed people gave up and left the labor market entirely. Romney advisor Eric Fehrnstrom (Mr. Etch-A-Sketch) blames President Obama, and he even pretends his candidate cares that "people are so discouraged they are dropping out of the workforce all together."
Let's get one thing straight: Even with this anemic recovery, the economy under Obama has replaced all of the jobs lost under the Bush administration. NBC's Chuck Todd deserves kudos for noting to Fehrnstrom Friday that British austerity policies have sent that nation into a double-dip recession – and that Mitt Romney supports the same policies. Fehrnstrom performed the standard Romney pivot – whatever you're asked, insist on talking about the U.S. economy only – brushing off Todd's question about how Romney would improve the economy more than Obama has, with his "cut, cap and balance" austerity policies that have failed elsewhere.
But the stalling economy is not good news for Obama-Biden 2012. I've said before that I think the debate over whether the Democrats' campaign message should highlight income inequality vs. growth, opportunity and prosperity presents a false choice: The president is a skilled enough communicator to explain how they're linked. But he's really got to find a way to turn around the debate and make clear that consumers, not the wealthy, are the real "job creators." Until we figure out a way to get people employed and almost as important, get incomes rising again (for more than just the folks at the top) our economic troubles will stay with us.
Paul Krugman is making the rounds talking about his new book "End This Depression Now!" which puts in one place the arguments he's been making since at least 2009: The Lesser Depression is more a political problem, at this point, than an economic problem, since the GOP is implacably opposed to the government spending that has traditionally goosed the economy out of its doldrums. Right on time, McCain economic advisor Doug Holtz-Eakin is out with a piece that doesn't challenge Krugman by name but argues that all the stimulus of the last decade – from Bush tax cuts through the 2009 Recovery Act and mini-stims like the payroll tax cut – haven't helped the economy, because this hasn't been a "demand recession" but a structural "asset-driven recession," due to the bursting of first the dot-com bubble and then the much more serious housing sector and banking collapse.
I'm not qualified to get into the weeds with either of these two economists, but we should remember two things about the '80s recovery that Holtz-Eakin says was a strong one. First, few Republicans ever acknowledge that Ronald Reagan became a stealth military Keynesian mid-term, letting Paul Volcker loosen up the money supply while presiding over a defense buildup that was also a stimulus package. The Reagan years also saw the beginning of household debt beginning to balloon, while household savings declined – a result of the flattening of wages taking place especially for the working class. Holtz-Eakin ignores the extent to which the banking collapse itself took demand out of the economy, and money out of consumers' hands – money they'd been taking out of their homes or their credit cards, at least partly because they weren't getting it in their paychecks.
And the Recovery Act that the former McCain advisor terms a failure was hailed as a success by another McCain economic advisor, Moody's Mark Zandi, who is on record saying it stemmed job losses and probably kept us out of a real depression. Its problem was that it didn't pump enough money into the economy, not that it pumped it wastefully. All we really know is that stimulus via tax cuts, the great Bush experiment, didn't work at all; they helped wreck the economy.
What does Holtz-Eakin recommend instead? "Pro-growth tax reform" – he doesn't say what that involves – and "fundamental entitlement reform that eliminates the debt threat." Of course, fundamental entitlement reform, which normally involves proposals to raise the eligibility age for Social Security and Medicare and/or cut benefits, would take money out of the hands of senior citizens who need it, to eliminate the supposed "debt threat" that's only a threat when a Democrat is in the White House, by the way. "Reagan proved deficits didn't matter," Dick Cheney told Treasury Secretary Paul O'Neill in 2002, a month before he fired him. The GOP really needs to get its story straight on this one.
But so do Democrats. I'm anxious about reports that Democrats are willing to vote for the Simpson-Bowles deficit reduction package, even if they oppose its program cuts, because they know Republicans will oppose its tax increases and they'll get to proclaim themselves the party of deficit reduction. They need to become the party of jobs, not deficit reduction.
The White House reportedly considers Krugman a bit of a scold and tunes him out; the same with Robert Reich, who makes similar points on his blog today. But let's hope they find time to read Krugman's essay in the New York Review of Books, which goes into the weeds on the way government spending boosts employment and deficit reduction does not. President Obama's approval ratings have climbed since he began touting job creation, and as Krugman observes:
The experience of Obama’s first term suggests that not talking about jobs simply because you don’t think you can pass job-creation legislation doesn’t work even as a political strategy. On the other hand, hammering on the need for job creation can be good politics, and it can put enough pressure on the other side to bring about better policy too.
Or to put it more simply, there is no reason not to tell the truth about this depression.
Put even more simply, Democrats need to make the case that consumers are the real job creators. Unless we can get them employed and with higher wages, this Lesser Depression will persist.