Roughly, 6.1% of the workforce is unemployed and jobs are still disappearing every month, but economic growth is beginning to pick up. So far, though, the increased productivity is yet to translate into a decline in unemployment.
Nearly three million Americans have lost their jobs since President George Bush took office in January 2001. Economists who were predicting a large budgetary surplus just three years ago, are now projecting a massive $480 billion deficit for 2004. That is the bad news.
The good news, economists say, is that productivity levels are rising and the increase in the unemployment rate appears to be slowing down. While the worst may be over, no one knows what to expect in the near future.
Wage levels down
“Even though GDP (gross national product) is actually growing, things have been worsening in terms of less jobs and lower wages,” said Lawrence Mishel, a financial expert at the Economic Policy Institute, a Washington think tank.
Mishel said a study by his organisation showed that, on average, US wage levels were down by about 1%.
The US spends roughly $1billion a
week on the occupation of Iraq
For jobs to be created, GDP would have to grow by about 4% in order to make room for all the new workers in the country, and for redundant workers looking to find another job, according to Barry Bosworth, a senior economist at the Brookings Institution, a DC-based think tank.
“We have to grow faster just to stand still in terms of jobs,” Bosworth said.
Right now, the economy is growing at roughly 3.1%, but probably there will not be any significant improvement in the job market until businesses are confident the growth will continue, something Bosworth said might not happen.
“I think the decline in employment will stop, but I agree with people who worry that the growth will not sustain into next year,” he said.
Unemployment is a source of great concern for the Bush administration, heading into next year’s presidential campaign. The administration pushed a $350 billion tax cut through Congress three months ago with a promise that the plan would create new jobs, something that has not happened, said Mishel.
“The president claimed that he was going to be able to create 340,000 jobs a month with the tax cut,” he said. “So far, that hasn’t materialised and I don’t think it’s going to.”
Conservatives argue that the unemployment rate would be much worse without the small boost in economic growth that they say was generated by the tax cut. However, if the employment level continues to fall, Bush could be in trouble next year, say experts.
While jobs are clearly a source of concern in Washington, the most heated debate is centred on the rising federal deficit.
What was once expected to be $5.6 trillion government surplus by 2011, is now anticipated to be a $2.3 trillion deficit by the same year, according to the Congressional budget office.
Democrats are worried that a large deficit could lead to spending cuts in education and other social programmes.
They also wonder how the administration will be able to pay for any of the new programmes it is proposing, such as expanded Medicare coverage and billions of dollars to help fight AIDS in Africa, without having to borrow the money and increase the deficit to nightmare proportions.
Deficit spending has always been controversial in American politics, and the current cost of the US-led occupation of Iraq is a shining example of that.
The US is spending roughly $1 billion a week to sustain the occupation, and the international community appears reluctant to share the economic burden without political concessions the Bush administration is unwilling to grant.
Bush recently announced a request for $87 billion from Congress in order to pay for the military and reconstruction effort in Iraq and Afghanistan next year.
“Social Security will have to become far less generous...Medicaid will no longer provide basic medical care to the poor”
Paul Krugman, Economist
Many economists believe deficit spending during a war can help the economy by spurring productivity.
“In the short term deficits can have a positive effect on the economy by increasing expenditures, by increasing demand,” Mishel said.
However, over the long term, a mounting deficit could lead to an economic disaster, pushing interest rates sky high, making it extremely difficult for both the government and private businesses to obtain bank loans, he said.
“There’s going to be a backlash from businesses and from Wall Street at some point over the deficit,” he said.
In addition, debate continues over the viability of the $1.5 trillion in tax cuts,G pushed through by President Bush so far, which many liberal economists say bears much of the responsibility for the size of the projected deficit.
If the economy remains relatively stagnant, the increased military spending and tax cuts could threaten spending levels on important federal programmes, according to a recent article in the New York Times Magazine by economist Paul Krugman.
“Social Security will have to become far less generous; Medicare will no longer be able to guarantee comprehensive medical care to older Americans; Medicaid will no longer provide basic medical care to the poor,” Krugman said.
Most political experts agree that it is still too early to tell whether the economy will present a real threat to President Bush in the 2004 election. But Mishel said that if things did not improve by next spring, Bush could have a problem.