News / USA

US Economic Woes Debated

Economic advisor Robert Reich, former Labor Secretary (File Photo - November 7, 2008)
Economic advisor Robert Reich, former Labor Secretary (File Photo - November 7, 2008)
Michael Bowman

A recent rise in the U.S. unemployment rate has rekindled debate on America's slow-growth economy and what can be done to spark expansion and create badly-needed jobs.

Historically, U.S. economic recoveries have gained momentum over time.  But a year and a half after emerging from the deepest recession of the post-World War II era, the U.S. economy is expanding, but only barely so. And even that anemic growth could be faltering.

News that the nation’s unemployment rate shot up above nine percent last month intensified economists’ fears that tepid economic performance could persist for years to come.

According to Robert Reich, who served as Labor Secretary during the Clinton administration, America’s lackluster economy is easy to explain.

“The central problem is on the demand side. Seventy percent of the U.S. economy is consumers [consumer activity]. And consumers are hit with the equivalent of a truck," he said. "Housing prices are dropping like mad.  Wages adjusted for inflation are dropping.  Their jobs are disappearing. Under these circumstances, consumers are not spending.  And if they are not spending, then jobs are not going to be created.”

Reich spoke on ABC’s This Week program. He advocated additional federal stimulus to spur economic activity.

Republican Senator Richard Shelby of Alabama sharply disagreed.

“Stimulus basically does not work. We have tried that," said Shelby. "I think what we have got to do is create the conditions [for economic growth]: tax reform, incentives for manufacturing. The market grows the economy. We have grown the government, but we have not grown the economy.”

But former Labor Secretary Reich insisted that, when the private sector is lagging, the government should intervene.

“When consumers and private investors are pulling in [withholding spending], then government has got to fill the gap," said Reich. " We have done this for the last 75 years.”

Under President Barack Obama, an $800-billion federal stimulus package has been approved, income tax cuts have been extended, and the amount of money taken from workers’ paychecks to fund Social Security for retirees has been temporarily reduced. In addition, the U.S. central bank has kept interest rates at historically-low levels and sought ways to pump money into the ailing economy.

Senator Shelby says there is only so much a heavily-indebted federal government can or should do, and that a new stimulus package, if proposed, would not pass Congress.

“What we need to do is create some certainty, some conditions for people to invest, to grow [the economy], to have some confidence," he said. "There is not a lot of confidence in the economy right now.”

President Obama has urged patience, arguing that the economy needs time to heal from a deep recession and the 2008 financial crisis. Republican presidential hopefuls vying to challenge Obama in next year’s election have been quick to proclaim that what is truly needed is new economic leadership.

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