The Real Challenge is Job Growth, Not Deficits

The private sector created 155,000 jobs in December, almost exactly the average for the 11 previous months of 2012 and for all of 2011. Once again, it is a record far too weak to produce real progress towards either an adequate recovery or decent growth in wages and salaries. At this rate of job creation, according to the Economic Policy Institute, it will take another decade to get back to the employment rate of early 2008.

According to the Labor Department, there were 7.5 million net jobs lost in the recession, and a gain of only 3.5 million net jobs so far in the recovery. We have 4 million fewer jobs now than five years ago, and a much larger labor force.

Consider the connection between these tepid job figures and the debate that still occupies center-stage in Washington -- deficit reduction. Supposedly, businesses are not creating enough jobs because business leaders are anxious about the Federal debt.

For months, we have been hearing that businesses have been putting off making new investments or hiring new workers for fear that Congress would fail to cut the federal deficit. The austerity lobby helpfully put reporters in touch with businessmen who claimed that the uncertainty about the budget was dampening their willingness to expand, producing stories like this one in the New York Times last August. The Times contended:

A rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington will force hundreds of billions in tax increases and budget cuts in January, undermining economic growth in the coming months.

But this turned out to be just about total baloney. During the months when the Congress and the press kept everyone on the edge of their seats wondering about the dreaded fiscal cliff, business behavior went on as normal -- and a mediocre normal at that. The lousy rate of job creation hardly changed. Detroit enjoyed a good fourth quarter as very low-interest rates stimulated auto sales. Christmas sales were about what was predicted, as consumers turned to their credit cards.

To the extent that the economy has remained stuck in first gear, it has everything to do with high unemployment and lagging wages, and just about nothing to do with the fiscal cliff or worries about the debt ratio 20 years down the road.

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