Earlier this month it was announced the unemployment rate hit 10.2 percent, reaching double-digits for the first time in 26 years. Though the rate had been expected to top 10 percent for some time due to our anemic economic recovery – and despite billions of dollars in stimulus money – the stark reality of having an unemployment rate usually associated with the socialist regimes of Europe still smacked casual observers in the face.
Yet Congress used the same tired solutions to address the issue, further extending unemployment benefits while also extending and expanding a targeted tax break designed to maintain the housing industry. Unsurprisingly, the Realtor lobby was foursquare behind the extension.
Economists generally argue that unemployment is a lagging indicator; in other words the employment rate doesn’t keep up with the overall economy. True, the unemployment rate stayed under 5 percent well after the recession began in late 2007 and not holding above that mark until May of 2008.
However, the severity and wide range of this downturn through both business and personal finances means the financial spigot will be turned off for some time. High unemployment may also portend the start of a vicious cycle leading to a deeper, “double-dip” recession.
Over the last few decades, our economy has come to depend on consumer spending for about two-thirds of its activity. Fueled by easy credit and a continual increase in home values – which led to a boom in lending based on home equity – Americans spent money on consumer goods and increased their standard of living beyond that of any country in history.
This wave of prosperity can be traced all the way back to just after World War II. Once returning servicemen were absorbed by the job market, American prosperity grew at an unprecedented rate. All the while we slowly forgot the lessons of thrift and saving the generation growing up during the Great Depression learned the hard way. Certainly there were bumps in the road, but the general trend in economics was such even the poorest Americans had a standard of living unthinkable a generation prior.
As credit became easier and debt no longer feared, Americans overextended themselves at an alarming rate. Therein lies the biggest difference between the recession of the early 1980’s and today’s economic woes: whereas families kept savings to fall back on during previous times, their profligate spending over the last two decades left them deeply in debt and owning a house worth less than their mortgage thanks to the collapse of the housing bubble, not to mention likely to be either unemployed or having their hours cut back. In short, Americans are being burned by the heated economic expansion they created.
While the government attempts to create stimulus through spending and creating debt, prudent Americans are doing what they can to build savings and cutting back on unnecessary items, with retail analysts predicting a gloomy Christmas shopping season. Unfortunately, the spending by Uncle Sam will hamper the efforts of American families to get back on their feet and may prolong the down cycle.
It’s time for government to follow the lead of the last President who inherited a financial crisis. Worthy of note is that the high unemployment rate under President Reagan declined quickly once the tax cuts he pushed through Congress took effect. With President Bush’s tax cuts from earlier this decade due to expire next year, raising taxes on anyone now would be deleterious to the recovery we need.
America needs to be put to work through the private sector, so let’s allow capitalism to do its job.
Michael Swartz is a Liberty Features Syndicated writer.
The latest in my series of op-eds for LFS, this cleared back on November 17th.
