A fading recovery spurs the Fed to action

What happened

Amid mounting fears that the economic recovery has stalled, the Federal Reserve said this week it would begin pumping $10 billion into the financial system every month to avert a downward spiral. The Fed’s intervention came after the government reported last week that private employers added only 71,000 jobs in July. With the Census Bureau laying off many of its workers, there was a net loss of 131,000 jobs for the month. The unemployment rate remained at 9.5 percent, as 181,000 discouraged job seekers dropped out of the labor pool. Noting that “the pace of recovery in output and employment has slowed in recent months,” the Fed said it would buy billions in Treasury bonds every month in an effort to hold down long-term interest rates, stimulate bank lending, and avoid deflation. Deflation, a broad decline in the prices of goods, often causes panicked companies to lay off more workers.

President Obama tried to make the best of the jobs report, noting that private employers had added jobs, although far fewer than the 250,000 needed each month to show a full recovery. “The road to recovery doesn’t follow a straight line,” he said. Stock prices throughout the world dropped sharply midweek—more than 2 percent—as traders lost confidence that the U.S. economy would bounce back strongly within the next six months. “Uncertainty, uncertainty, uncertainty,’’ was how Javier Perez-Santalla, a brokerage firm managing director, described the mood of world markets.

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What the editorials said

Despite throwing “the entire Keynesian playbook at the economy,” the Obama administration has failed to put America back to work, said The Wall Street Journal. The administration’s attempt to “force-feed private investment with government spending” has served only to drain the private sector of the confidence needed to create jobs. Obama’s anti-business rhetoric hasn’t helped, either. It’s “time to try a different economic model”—namely the tax cuts and pro-business policies that brought us prosperity during the Reagan years.

Congressional Republicans should share in the blame, said the Pittsburgh Post-Gazette. So far, their only response to the alarming unemployment numbers has been an attempt “to block, in a party-line vote, a $42 billion bill that would have aided small businesses.” And please, can business executives stop blaming Obama for their failure to hire? said the San Francisco Chronicle. Their companies are now sitting on piles of cash, and they could easily exploit rock-bottom interest rates to expand or launch new ventures. It’s hard to believe that businesses “would refuse to get in the game just because they have their feelings hurt.”

What the columnists said

I’ll tell you why I’m not hiring, said Michael Fleischer in The Wall Street Journal. “Creating a new job carries a punishing price” in the form of taxes that I, as a business owner, must either pay or collect on the government’s behalf from my employees. It now costs an employer $74,000 to hire an employee with take-home pay of $44,000 a year and $12,000 in benefits. And with government spending and deficits mounting, “you know that more taxes are coming.” Businesses face enough uncertainties; government shouldn’t add to them.

If Obama is so anti-business, said Ezra Klein in The Washington Post, why did corporate profits hit an all-time high of $1.37 trillion in the first quarter? “Maybe the president could be anti-me for a while. I could use the money.” The fact is, the unemployment picture today is typical of the early stages of most recoveries, which is to say, locked in a “Catch-22.” Companies won’t hire until the economy recovers. And the economy won’t recover until business starts hiring.

And what do the 20 million people without jobs do in the meantime? asked Bob Herbert in The New York Times. The White House and Congress are not addressing the profound suffering of the unemployed; instead, Washington politicians would rather appropriate billions for foreign wars while “schizophrenically babbling about balancing the budget.’’ This is the 1930s all over again, and “the U.S. will not remain a stable society if this great unemployment crisis is not addressed head-on—and soon.’’