House Passes Unemployment Extension

by John M. Curtis
(310) 204-8700

Copyright July 20, 2010
All Rights Reserved.                                

            When you get the big picture, the House voted 60-40 to continue unemployment benefits for millions of displaced workers, unable to find employment in the most punishing recession since the Great Depression.  Were it not for the vote of the late Sen. Robert Byrd’s (D-W.Va.) replacement, 36-year-old Sen. Garte Goodwin, 2.5 million would be heading to homelessness.  While optimists see a fragile recovery, Federal Reserve Board Chairman Ben S. Bernanke thinks otherwise, keeping the federal funds rate at zero to a quarter-percent in the last Open Market Committee meeting June 23, the lowest rates on record. Low interest rates signal that the economy remains in stalled, with little light at the end of the tunnel for employment.  European Central Bankers also kept interest rates on hold when they met July 8 in Stuttgart, signaling that the eurozone also remains dangerously weak.

            Republicans, driven by Reagan-era Supply Side Economics, believe growing deficits and piling up debt stalls long-term economic growth.  With few exceptions, they tried to filibuster President Barack Obama’s attempt to continue unemployment benefits.  While railing against government bailouts, the GOP can’t explain what the economy would look like without bailing out the nation’s biggest financial institutions.  With about 75% of Gross Domestic Product based on consumer spending, the Supply-Siders can’t explain how they intend to keep consumer demand up with corresponding high unemployment.  Without employment and cash in people’s pockets, consumer demand remains sluggish.  Consumers need employment first before they can help stimulate the economy.   Whatever problems banks have with extending credit, economic growth requires more employment.

            Today’s economy is stalled because the stock market can get enough traction to provide consistent liquidity to publicly-traded corporations.  Since the growing prevalence of hedge and private equity funds, long-term investors can’t retain enough growth in their portfolios because of short-sellers, those investors betting against the market.  When Congress passed financial reform July 16, there were no provisions to regulate hedge and private equity funds, nor any restrictions against short-selling.  Short-selling causes markets to fall-and-rise, a perpetual buy-low sell-high cycle that leaves long-term investors holding the bag.  Publicly traded corporations also suffer by having their stock accounts on which they depend to expand businesses and hire new employees periodically liquidated.  Extending unemployment benefits make sense until markets make a more sustained comeback.

            When the Toronto G20 economic summit met June 27, Obama begged Europeans to lighten up about the need for austerity.  German Chancellor Angela Merkel urged Barack to implement austerity in the U.S., much the same as European Central Bankers, who believe that retiring debt is more important for long-term fiscal health than providing more stimulus or government bailouts.  Like conservatives in the U.S., Merkel believes that the way to prosperity is by retiring debt.  U.S. Treasury Secretary Tim Geithner wants a more balanced approach that recognizes the need for government support but, at the same time, reducing budget deficits.  Fed and Treasury officials know that the best and only surefire way to improve the economy is grow the stock market.  To do that, hedge and private equity funds can’t continue to routinely short the market, hurting long-term investors.

            Continuing unemployment benefits for 2.5 million people should have a stimulus effect on the economy.  Without jobs or cash in their pockets, consumers don’t spend and contribute to the economy.  Consumer spending remains weak.  Some economists project a long time horizon for the current recession, not replacing the 8 million lost jobs until sometime in the middle of the decade.  “This bill is about jobs because unemployment insurance goes to people who will spend it immediately,” said Sen. Max Baccus (D-Mont.), seeing the stimulus effect.  “That would increase economic demand.  And that would help support our fragile economic recovery,” admitting that private sector employment continues to lag.  If the recent financial overhaul doesn’t spur more stock market growth, private sector jobs won’t return anytime soon, eventually stalling economic recovery.

            President Barack Obama took a wrong term listening to the Pentagon and escalating the Afghan War.  While he’s pressured by the Military Industrial Complex, the president must get the bigger picture.  Since Sept. 11, the country hasn’t been able to sustain massive military outlays without damaging the economy.  Nobel Prize-winning Columbia University economist Joseph E. Stiglitz warned of dangers to U.S. economy from protracted wars.  Former President George W. Bush didn’t get the picture, nor has Obama.  For the economy to recover, Obama must do what Bush couldn’t, namely, end the wars in Iraq and Afghanistan and dramatically reduce military spending.  House GOP leader John Boehner (R-Ohio) and Senate GOP leader Mitch McConnell (R-Kt.) can’t have it both ways:  Increasing military spending and reducing national debt and whopping budget deficits.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.