YOU DECIDE: Where do we go from here?
Date posted: November 9, 2012
Media Contact: Dr. Mike Walden, 919.515.4671 or firstname.lastname@example.org
By Dr. Mike Walden
North Carolina Cooperative Extension
The election is over, and in a few weeks our newly elected political leaders will take office. The economy — and particularly jobs — was clearly the top issue during the political campaigns. Two big questions now face the office winners. What is the condition of the economy? And what, if anything, can government do to quickly improve the economy? I’ll give you some information and competing ideas and then let you decide.
Most economic indicators suggest we are on the mend. The decline in the economy from late 2007 to mid-2009 was the worst in the post-World War II period. To distinguish the downturn, it is now commonly referred to as the Great Recession.
But the good news is that those same economic indicators have now moved off their lows and have trended higher during the last two years. Gross Domestic Product — the value of everything our country produces — now exceeds its pre-recession high. Consumer confidence is over one-third better than in 2008. Construction, sales and prices of homes have all trended higher this year. Households have paid-off over $1 trillion of debt and are now spending more at malls, shopping centers and other retail outlets.
Even the job picture is better. Nationally, employers have added over 4 million jobs since early 2010, and in North Carolina employers have put more than 100,000 workers on the payroll over the same time period. For both the nation and North Carolina, this translates to job gains of near 3 percent. Each of the various measures of the unemployment rate, from the narrowest to the broadest, has also declined.
However, the economy is hardly booming. The common comment I hear when speaking to various groups across the state is that business is “better but not great.” In the country there are still over 4 million fewer jobs today than before the recession, and in North Carolina the gap is near 200,000 jobs. So this situation leads to the second big question: What can government do to quickly improve the economy and create jobs?
Of course, this is where we get huge disagreements. One recent proposal is for the federal government to guarantee every unemployed person a job. Each individual’s talents would be assessed and then matched to government-funded positions in education, health care and services. The cost would be high, approaching $750 billion annually for salaries, benefits and materials for all the unemployed, but supporters say the net costs would be lower as other social safety net spending could be reduced.
Critics of such an approach worry not only about its cost but also whether the jobs would be “make work,” and if the guarantee of a job might reduce the individual’s motivation to acquire the training and skills necessary for a private sector job.
At the other end of the spectrum is the notion that rather than directly providing jobs, government’s role is to create the conditions conducive for the private sector to create jobs. During the presidential campaign, we heard four elements of this focus: changing the tax code, reforming regulations, promoting energy development and reducing the borrowing of the federal government.
Let me give a thumbnail summary of the debate around each of these components. For taxes, one approach says lower tax rates, perhaps combined with fewer deductions, can spur economic growth and jobs. But opponents question how much impact tax rates have on growth and whether lower rates would actually lead to more rather than less government borrowing.
Reformers of regulations point to two new regulatory initiatives — the Affordable (Health) Care Act and the Dodd- Frank Financial Reform Act — passed in the last three years as major new programs imposing more regulations on businesses. They suggest reform or repeal of the measures would be a plus for job creation. But backers of the new regulations say they will mean added jobs in health care as more people are covered by insurance and a more stable financial system less prone to collapse.
The county has large oil and natural gas reserves both on-shore and off-shore that can now be accessed with new technology. Studies show that doing so could lead to over one-half million jobs nationwide by 2020. Yet skeptics argue these gains must be balanced against potential environmental costs and a broader approach that includes renewable energy forms.
We have been facing an issue with growing federal borrowing for over a decade. It worsened — as usual — during the recession. Among many worries, one concern is that public borrowing may crowd-out borrowing by private companies, thereby inhibiting firms’ ability to grow jobs.
Not all macroeconomists agree with the above analysis. But for those who do, policies that would reduce levels of federal borrowing are an essential element in a jobs-creation policy. Of course, the big question is how to do this.
In the coming months it will be fascinating to watch as our newly elected public leaders confront our many economic challenges. I hope I’ve given you a play sheet for following the debates and ultimately arriving at your own decisions.
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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide
Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/
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