The employment report from the Labor Department, issued Friday morning, reinforced the importance of Congress and the White House managing well the looming collection of budget challenges, known as the “fiscal cliff.” President Obama indicated that the matter could be resolved rather quickly. He is right in theory. The trick will be setting the priorities in a sound order.
The employment numbers revealed an economy still recovering slowly, adding 146,000 jobs in November. That is roughly the average monthly gain the past 33 months in private sector job creation, or short of the 200,000 to 300,000 new jobs per month in a strong recovery. The jobless rate fell to 7.7 percent, the lowest level in four years. Yet the decline largely stemmed from a shrinking labor force, fewer people looking for work.
Today, there are 4 million fewer jobs than when the recession began in late 2007. Two-fifths of the unemployed have been seeking work for 27 weeks or longer. The previous high for this figure during the past 60 years was 26 percent in June 1983.
All of this points, again, to the type of recession the country suffered, one featuring the collapse of a financial bubble. These downturns almost always involve a long, slow recovery, as people repair their finances and seek to restore their assets.
For Congress and the White House, the first priority must be to do no harm to the fragile recovery. The Congressional Budget Office has warned that a failure to ease the approaching tax increases and spending reductions would likely the send the economy into another recession.
Look at Britain and parts of Europe for stark lessons in such austerity. Economies have stalled, and fallen back, posing a burden on the American economy. This isn’t the time here for placing undue emphasis on deficit reduction. If anything, markets have been signaling as much, investors seeing this country as a safe place for their money.
The country doesn’t face something as dramatic as a steep cliff at the end of the month. The impact would be gradual, allowing room for negotiation into the new year. Yet the psychology is crucial, Washington taking command, more or less.
In that way, it is sensible to make a down payment on lowering the deficit by allowing income tax cuts at the top rates to expire, a tiny fraction of households affected, with a negligible economic impact. That leaves room for extending the remainder of the Bush tax cuts, applying a fix to limit the reach of the Alternative Minimum Tax and renewing popular tax breaks for such items as research and development.
The recovery would be aided, too, by extending jobless benefits and the “doc fix,” avoiding a sharp reduction in Medicare reimbursements. A strong case also exists for public works and continuing the payroll tax reduction for another year.
The point isn’t to diminish the importance of addressing the deficit. A further down payment could be made in the form of later means-testing for Medicare. Yet the timing matters, those automatic spending cuts promising a dampening effect, austerity deepening the deficit problem in the long run. Finally, a country looking to manage smartly, bolstering its recovery, improving the jobs numbers, then addressing its financial imbalance, should avoid an embarrassing and unnecessary squabble over its debt-ceiling.