Editor’s note: Part of a series of stories examining issues at stake in the election and their impact on people.
The issue: The economy is weak and the job market brutal. Nearly 13 million Americans can’t find work; the national unemployment rate is 8.1 percent, the highest level ever three years after a recession supposedly ended. A divided Washington has done little to ease the misery.
Where they stand: President Barack Obama wants to create jobs with government spending on public works and targeted tax breaks to businesses. Mitt Romney aims to generate hiring by keeping income taxes low, slashing corporate taxes, relaxing or repealing regulations on businesses and encouraging production of oil and natural gas.
Why it matters: The economy didn’t take off when the recession ended in June 2009. Growth has never been slower in the three years after a downturn. The human toll is immense. Forty percent of the jobless – 5 million people – have been out of work for six months or more, their skills eroding and their chances of finding good jobs fading. Federal Reserve Chairman Ben Bernanke has declared long-term unemployment a “national crisis.” Millions of Americans have simply given up looking for work.
The agonizing recovery is the consequence of the deepest recession since the 1930s. The economy lost a staggering 8.8 million jobs and has only clawed back 4.1 million, or 46 percent. A financial crisis dried up credit. Collapsing house prices destroyed $6.5 trillion worth of home equity – the biggest source of wealth for most families. More than 1 in 5 homeowners is stuck with a house worth less than the mortgage on it. Feeling poorer, families have limited their spending and paid down debts. They’ve had another reason to hunker down: The weak job market has let employers keep wages low. For most Americans, pay hasn’t kept up with even modest inflation.
Weeks after he took office, Obama pushed $862 billion worth of tax cuts and government spending programs through Congress. The package was meant to generate economic growth and revive hiring. Romney and other Republicans have declared the stimulus program a failure. But most economists – and the nonpartisan Congressional Budget Office – say it kept unemployment from going even higher.
Still, faced with a persistently sluggish economy, Obama proposed another plan last year to rev up hiring with increased spending on public works projects and tax breaks to small businesses. But his $447 billion jobs plan has gone nowhere, blocked by congressional Republicans who say government programs to help the economy accomplish little other than swelling the $11.2 trillion federal debt – $16 trillion if you include money government agencies owe each other.
They advocate lower taxes and fewer government regulations. Specifically, they want to repeal Obama’s health care law and the Dodd-Frank law that tightened regulations on Wall Street.
With the politicians paralyzed, the Federal Reserve has stepped in, pushing short-term interest rates to zero and pouring more than $2 trillion into financial markets by buying Treasury debt and mortgages. The Fed’s actions may have kept the economy from slipping back into recession, but they have not stimulated healthy economic growth.
Republicans and Democrats will have to find some common ground before the year ends to prevent the economy from falling off a “fiscal cliff.” If they don’t reach a budget deal, more than $600 billion in spending cuts and tax increases will start to kick in next year. The threat of the fiscal shock is meant to force Republicans and Democrats to compromise. Otherwise, the combination of spending cuts and tax increases probably would send the economy back into recession and drive unemployment back to 9 percent next year, the CBO estimates.