High unemployment rates threaten President Barack Obama's chances of reelection more than solving the current debt ceiling impasse, says Martin Feldstein, a Harvard economist and President Ronald Reagan’s chief economic adviser.
Even if the president strikes a deal on lifting the government's $14.3 trillion debt ceiling to avoid default, the tough task lies in lowering the unemployment rate from 9.2 percent closer to the 2007 level of 4.6 percent.
To bring the rate down just to 8 percent by November 2012, the economy needs to add 200,000 jobs a month, more than four times the pace seen in last two months.
|President Barack Obama
(Getty Images photo)
That's not going to happen unless Obama reverses course especially on taxes, Feldstein writes in a Financial Times column.
"The policies of the Obama administration did not reverse the large initial fall in demand and have actually made the recession longer and deeper than it should have been," Feldstein says.
"President Obama's relentless call for higher taxes discourages spending by businesses and households. The administration's policies to fix the problems of housing and small businesses have failed."
Jobless claims in the U.S. shot up unexpectedly recently.
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Initial jobless claims rose by 10,000 to a seasonally adjusted 418,000 for the week ending July 16, according to the Labor Department.
Economists say the figure does not bode well for those betting on more robust recovery later this year.
"I think we are stuck in low gear," says John Silvia, chief economist at Wells Fargo, according to Reuters
"These numbers don't support the case for having 3.5 to 4 percent growth in the second half of the year that some people had talked about."
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