Slowly but surely, Obama's economic medicine is working
Jobs. Jobs. Jobs. President Obama has bounded back from his midterm shellacking with a still more determined effort to convince the American people that he is on top of the unemployment problem.
Not only did "jobs" appear 31 times in his State of the Union address (two more than last year), the White House left little to chance in its pre-speech messaging and spin. Take, for example, a recent account in the New York Times Sunday magazine of the president chastising his (now mostly departed) economic advisers for their lack of specific proposals to attack unemployment.
Please, Mr. President, don't blame the talented economists who were advising you, and as the 2012 reelection campaign commences take care not to launch jobs initiatives that make more political sense than economic sense. Creating jobs is a slow and frustrating process in the wake of a tough recession, particularly this time around, when the downturn was compounded by a financial meltdown. It's difficult to jump-start that process, just as recovery from major surgery takes time.
Amid our national worrying, we shouldn't ignore some hopeful signs. At long last, the arc of the economy has turned decidedly upward. Most every indicator - gross domestic product, retail sales, consumer confidence - reveals an economy gathering momentum and consistency.
Jobs have, no doubt, lagged. When the financial crisis and accompanying recession hit, companies sprinted for their bunkers, slashing both expenses and workforces as buyers for their products melted away. As sales have returned, companies have been bringing back employees gingerly, often relying instead on part-timers and extending hours.
That's understandable. Why, after a near-death experience, would a chief executive quickly start layering on more costs without knowing what revenue might follow? Some companies choose to blame regulatory uncertainty and the policies of the Obama administration for their lack of hiring. But those explanations ring hollow. Every new administration is accompanied by uncertainty, and government oversight of selected sectors such as financial services is hardly a fresh concept.
Perversely, the nagging high jobless rate reflects two of the most promising attributes of the American economy: its flexibility and its productivity. Eliminating jobs - with all the wrenching human costs - raises productivity and, thereby, competitiveness (the president's new favorite word). In the long run, increasing productivity is the only route to superior competitiveness.
And compared with other developed countries, America's productivity record has been stellar. From 2000 to 2009, U.S. output per hour worked grew by a league-leading 20 percent. (Productivity in Germany, by contrast, grew 8 percent.) Unusually, U.S. productivity grew right through the recession; normally, companies can't reduce costs fast enough to keep productivity from falling.
That kind of efficiency is perhaps our most precious economic asset. However tempting it may be, we need to resist tinkering with the labor market. Policy proposals aimed too directly at raising employment may well collaterally end up dragging on productivity. And weak productivity would exacerbate the downward pressure on wages that caused the last decade to be the first in our history in which wages (after adjustment for inflation) declined.
High unemployment need not be a "new normal" for the United States. The historic close relationship between growth and jobs - dented by the force of the downturn - is on the mend. Private-sector hiring has already turned upward, albeit slowly. As business confidence grows, the pace will increase. It will take time - too much time; Obama is likely to be running for reelection against an 8 percent unemployment rate - but it will happen. Politically, as the State of the Union made clear, the president's task is to convince the American people that his administration is part of the solution.
Substantively, government's best possible contribution to employment consists of a one-two punch of stimulating growth in the short run and dealing with budget deficits and massive entitlements obligations in the long run. (Efforts to boost competitiveness, such as through carefully selected new investments and by reining in regulation, are also welcome!)
Thus, a large stimulus program in 2009 was the right medicine, as are the continuing efforts by the Federal Reserve to pump money into the system, much as post-surgery patients receive intravenous feeding.
Painting from a palette dotted with dangerous choices, the president wisely concentrated last week on emphasizing the need to address the long-run deficit, investment and competitiveness. Perhaps appropriately for a State of the Union, his speech lacked specifics on all sides of that triangle.
But we all know that without some combination of higher taxes and addressing the runaway cost of entitlement programs such as Medicare, we can't hope to significantly address the budget deficit. Providing those specifics must be the next step.
Steven Rattner, a co-founder of the investment firm Quadrangle Group, served as counselor to the Treasury secretary and lead auto adviser in the Obama administration. He is the author of "Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry."