Just when you were prepared to believe that the natural forces of The Market were finally going to put Americans back to work, the CBO reported Tuesday that unless we pump more money into the system, the national unemployment rate will in fact increase over the next two years. Today's better than expected job numbers shouldn't lead us to believe that this warning is wrong. As we have seen before in the past three years, things can get better before they get worse.
The CBO'S Budget and Economic Outlook estimates that if Congress leaves major budget policies as they currently stand—the baseline—the U.S. will have an unemployment rate of 9.2 percent in the last quarter of 2013. On the other hand, if Congress chooses an alternative fiscal scenario that extends tax cuts set to expire and nullifies the budget reductions required by the Budget Control Act of 2011, we could be looking at much better unemployment numbers, anywhere between 7.4 and 8.9 percent.
That is to say, the only thing hindering 500,000 to 2.7 million people from employment is Republicans’ prioritization of the deficit—a prioritization which, according to the CBO, also slows economic growth.
Trading lower unemployment for higher deficits remains a good bargain. Deficit hawks have always exaggerated the economic problems of spending. For example, if Congress pursued the alternative fiscal scenario mentioned above for the next ten years, 2013-2022, federal outlays would only be higher by 1.4 percent of GDP, or $2.9 trillion. (As a comparison, Reuters reported that through 2011 the U.S. has already spent $2.7 trillion on Iraq, Afghanistan, and Pakistan.)
In other words, we're not actually talking about a huge difference in spending, as measured by GDP, to take the steps needed to reduce unemployment and help get this economy going again. Today's job numbers should not be taken as a rationale for inaction, but instead show that policymakers have some real momentum to work with and that additional stimulus could help us really turn a corner.
Also, let's not forget that spending on things like SNAP, Unemployment Insurance, public education, and infrastructure represents investments in the capabilities and well-being of all Americans. So there is both an economic and a societal case for more spending right now.