Senate Joint Economic Committee Session on Economy

I watched the Senate Joint Economic Committee session that took place on Tuesday June 21, 2011. The topic was US and Global Economic Policies. Much of what was said was a rehash of old opinions by economic experts that have been talked about in numerous articles, on numerous talk shows, news reports and campaign speeches.

This article focuses on the forgotten causes of the job losses and on the expert's warnings about how to respond to the lack of jobs and the national debt. It is not a detailed description of the Senate Joint Economic Committee session. It is an overview.

It is very popular to blame the lack of jobs on Obama's policies. But if we look back to what experts were saying in 2008 during the height of the financial crisis, we find a slightly different analysis. This does not require much research. All one needs to do is an Internet search for "financial crisis and jobs" and one will come up with a whole bunch of web sites on the topic.

What The Financial Crisis Means For Jobs

http://money.cnn.com/2008/09/23/pf/job_impact/index.htm

Economic Crisis - Job Crisis

http://talkingunion.wordpress.com/2010/09/24/financial-crisis-jobs-crisis/

Dayton Expects Slow Job Growth

http://www.daytondailynews.com/business/dayton-expected-to-have-slow-job-growth-for-next-decade-1189688.html

Unfortunately, none of the references I found reveal the relation between the financial crisis and jobs. However, it isn't hard to figure out. The financial crisis resulted in tight credit meaning banks were not loaning money to businesses. People were spending less because many people lost their jobs and were unable to find another job. Some switched careers and consequently took deep pay cuts. The effects of tight credit rippled through our economy. Lots of foreclosures happened though for different reasons. The real estate market collapsed. Retail sales collapsed.

People quickly forget about the impact of the financial crisis and it's effect on jobs and real estate. They understandably are impatient and want huge jobs increases. Politicians claim that the job increases should have happened and didn't. But that isn't the opinion of some financial experts. President Obama repeatedly warned that this recovery will not happen quickly.

The economic experts had stated that the financial crisis would cause large losses of jobs that would extend far beyond Wall Street. They also predicted that the financial crisis would take a decade to recover from. Hence the slow growth in jobs.

The big question is: What do we do now? We are wedged between a huge national deficit and a fragile economy. I'll skip over the arguments about the causes of the huge national debt. That topic has been debated everywhere and material on it is easy to find.

The experts warned the committee that we should tread carefully. They warned that while resolving the national debt is important, huge fiscal constraint could lead to bigger problems in the future. They used the term 'hangover' to describe future problems.

Some experts argued that health care costs are the main driver of the national debt; not spending. One argued that tax reductions are a prime place to go to create fiscal contractions. Another expert brought up the idea of a consumption tax. All experts were concerned that large fiscal constraint can derail the economy. Deep indiscriminate spending cuts could be self defeating in the long run. They also argued that fundamental tax reform is essential to an economic recovery. One expert claimed that tax rebates did little to stimulate the economy.

One expert point out that the budget for 2011 reduced spending but has very little reduction in spending outlays.

There was also a discussion about a Constitutional amendment that limits spending based on the GDP. However reducing spending in response to a 20% GDP drop could be counter-productive when dealing with a recession. Hence the amendment needs careful research to ensure that it doesn't leave us in a 'trap with no exit' during a recession.

I think that businesses have not forgotten about the tight credit and are holding on to their earnings in expectation of higher interest rates as the economy recovers.