It's a vicious cycle: the economic downturn has helped to create political discord. Prolonged, political discord has hurt Americans' confidence in government. As a result, the economy suffers even more.
Confidence is a cornerstone of the latest report from the President Barack Obama's Jobs Council: "Taking Action, Building Confidence." In June, the council presented its first proposals, aimed at fostering immediate hiring. Now, the group has turned to larger macroeconomic issues. While the report issued today proposes broad initiatives intended to boost growth and restore economic confidence, like spending on infrastructure and encouraging foreign direct investment, it also acknowledges the U.S. crisis of political confidence: "[T]he Council believes that bipartisan action on this agenda in Washington—even on modest issues, to start—would boost confidence at this juncture and have a positive effect on our economy." Indeed, Americans' disenchantment with government can itself have the power to significantly slow the economic recovery.
The council, a diverse mix of 27 leaders, including Facebook COO Sheryl Sandberg, AFL-CIO President Richard Trumka, and GE CEO Jeffrey Immelt, who chairs the council, put together ideas that it believes can foster political agreement as well as job growth. "The Council has avoided politics, and focused on producing common-sense proposals that should attract broad-based support," a spokesman for Immelt said in an e-mail.
Gary Burtless, a senior fellow in economic studies at the Brookings Institution, believes that it is hard to argue with many of the council's ideas: "A lot of them of course would be excellent recommendations even if the U.S. had 4 percent unemployment and were growing at 3.5 percent a year."
However sensible the recommendations, Americans are pessimistic about Washington's abilities to pass job-creating measures. "I think there's little question that most people look at Washington, they see the dysfunction, [and] they say, 'We're not going to get any help from that direction,'" says Joel Naroff, president of Naroff Economic Advisors, a Pennsylvania-based economic consulting firm. A recent USA Today/Gallup poll shows that 67 percent of Americans believe the president and Congress are doing a "poor" or "very poor" job on dealing with America's problems.
Lawmakers' inability to reach consensus is again coming into sharp relief as the Senate prepares to vote on the President's jobs bill. Already foreseeing defeat at the hands of Republicans and perhaps a few moderate Democrats, the White House has formed a plan B: introduce the bill's proposals piece by piece.
In a speech at an IBEW training center in Pittsburgh today, Obama addressed the politics surrounding his jobs bill: "I think [Republicans would] have a hard time explaining why they voted no on this bill," he said, acknowledging that some Republicans may not approve it purely to prevent the White House from scoring a political victory. "This is not about getting me a win. That's why folks are fed up with Washington," Obama said.
Being "fed up" can hurt the economy in several ways, one of which is in a lack of consumer activity. When consumers see no chance of economic boosts on the horizon, they get timid, making very few or just very safe investments. The effect of a political crisis of confidence on the economy, says Naroff, is "a lot larger than people believe." He adds, "What we're seeing is sluggish spending not just from those people who have reasons to be sluggish [like the unemployed] ... but from the people who have the money to spend."
Even if Congress manages to push through some sort of job-creation legislation, the cumulative effects of harsh political messaging could cripple such a policy. With both parties having roundly declared each others' economic policies as potentially ruinous, says Naroff, any economic proposal that should happen to pass could create further economic worries among a significant share of the population. And a worried consumer is a hesitant consumer.
In addition, a pervasive, dark economic outlook can potentially make politics even more dysfunctional, as worried voters fall for poor economic logic, says Burtless: "I think when people don't have much confidence, then all of the nasty arguments that opponents to sensible policy make seem to make a lot of sense to people who are not particularly economically sophisticated," Burtless says.
While U.S. politics is paralyzed by partisanship, it is important to look at its dysfunctionality within the context of a very unstable global economy.
"Faith in other governments is deteriorating, too," Burtless says. He adds that, while the European Union's sovereign debt crisis could threaten U.S. economic stability, a crisis of confidence can work to the advantage of a historically strong United States economy. He points to the EU and Japan as two major economies where governmental strife could discourage foreign investment. If the United States looks relatively stable to investors, it could stand to benefit from this trend. Faith in the U.S. government appears hard to shake; even after ratings agency Standard and Poor's downgraded the United States' credit rating in August, investors did not flee from American debt; to the contrary, yields on the 10-year Treasury note dropped.
The Jobs Council's report includes a push for greater foreign direct investment in America as a key component of its plan. The council cites a report from the Boston Consulting Group, estimating that up to 3 million jobs could be created by enticing businesses to bring operations to the United States. Of course, some of the requisite policies—tax reforms, for example—would require agreement among lawmakers. And though tax reform does have some bipartisan support, Americans could be forgiven for not being optimistic about its passage.