Now that the debt ceiling skirmish is over, and all eyes are on Friday’s employment report, the conventional wisdom is that President Obama will “pivot to jobs.”
But it wouldn’t really be pivoting: The discussion about the shortage of jobs is really the debt issue looked at from a different angle.
That’s because the extraordinarily high federal debt-to-gross domestic product (GDP) ratio, which worries Standard & Poor’s and other ratings agencies, results partly from the denominator in that ratio (GDP, or national income) being too small – with scarcely any GDP growth in the first quarter of this year.
More workers, higher incomes, and faster GDP growth would improve the debt-to-GDP ratio and ease some of the bond markets’ concerns.
And of course the numerator in that debt-to-GDP ratio – federal debt – is not only too high right now, it’s headed much higher, largely due to an aging population driving up Medicare and other entitlement spending.
Under the Congressional Budget Office’s most plausible scenario, publicly held federal debt will increase from about 70 percent of GDP this year to more than 100 percent of GDP by 2021 and to 187 percent of GDP by 2035.
The debt is driven partly by the spending that was done in 2009 and 2010 to try to lift the economy out of the recession.
And here’s where jobs re-enter the picture: the waning of the $830 billion stimulus is what has caused the recent drop in state and local government employment, down about three percent from their 2008 peaks.
States are estimated to receive $66 billion less in stimulus funds in the current fiscal year than in the previous year, according to the National Association of State Budget Officers.
Right now, ironically, the only robust job growth sector is one where the president and many Republicans in Congress seem to agree that the federal government is over-spending. Health care employment has grown steadily for the past 20 years, immune to the ups and downs of the economy.
In any event, the phrase “pivot to jobs” raises the question of what can Obama say or do at this point that might appeal to voters, especially to middle-aged voters without jobs? He lacks the votes in Congress to do much more than perhaps get a trade agreement with South Korea ratified and extend and expand the payroll tax cut, set to expire at the end of the year. The payroll tax cut is supplying $111 billion worth of stimulus to the economy.