‘Three years after our worst recession since the Great Depression officially ended, the U.S. economy is still very weak’ writes Mark Weisbrot. The people most hurt by this weakness are the unemployed and the poor, and of course the two problems are related. We have about 23 million people who are unemployed, involuntarily working part-time, or have given up looking for work — nearly 15 percent of the labor force. And poverty has reached 15.1 percent of the population; amazingly, a level that it was at in the mid-1960s.
The first priority of the U.S. government should therefore be restoring full employment. This is a relatively easy thing to do. As Nobel laureate economist Paul Krugman aptly put it: “It’s like having a dead battery in a car, and while there may be a lot wrong with the car, you can get the car going remarkably easily, if you’re willing to accept that’s what the problem really is.”
Most economists are well aware what the problem really is, since it is so simple and basic. The economy lost about $1.3 trillion in private annual spending when the real estate bubble burst in 2007, and much of that has not recovered. State and local governments continue to tighten their budgets and lay off workers. If the federal government had simply funded these governments’ shortfalls, we would have another two million jobs today.
The right says we can’t borrow and spend our way to full employment, but there is no economic basis for their arguments. In fact, the federal government can borrow at 1.6 percent interest today for 10 year bonds. This is basically free money, and for those who want it to be absolutely free, the Federal Reserve has created $2.3 trillion since 2008 and can create more if the federal government is willing to spend it. The inflation-paranoids haven’t noticed, but the Fed hasn’t created any inflation problem in the U.S.: the Consumer Price Index is currently running at just 1.7 percent annually…