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The Jobs Crisis: What Hit Us?

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The US is stuck in an economic quagmire featuring near ten percent unemployment. As politicians argue about the solution -- massive tax cuts or increases in Federal spending -- what's missing is a succinct analysis of the problem. Why has America lost 8 million jobs?

The roots of the jobs crisis stretch back to the Ronald Reagan presidency when conservative economic ideology began to dominate American political discourse. At the forefront of this philosophy were three malignant notions: helping the rich get richer will inevitably help everyone else, "a rising tide lifts all boats;" markets are inherently self correcting and therefore there's no need for government regulation; and the US does not need an economic strategy because that's a natural consequence of the free market.

What followed was a thirty-year period where America's working families were abandoned in favor of the rich. Inequality rose as middle class income and wealth declined. As corporate power increased, unions were systematically undermined. As CEO salaries soared, fewer families earned living wages.

Conservative ideology produced a warped and brittle US economy, where more than two-thirds of our GDP was housing related: building, buying, and furnishing new homes or borrowing against existing homes in order to maintain a decent standard of living. When the credit bubble burst, the debt-based consumption model failed, taking down first the housing sector and then the entire economy, resulting in catastrophic job losses.

In order to be sustainable, the US economy has to generate 125,000 jobs each month. (To bring unemployment down to acceptable levels -- below 7 percent -- the US economy needs to generate 300,000 jobs each month for the next three years.) For this to happen, there have to be three positive conditions.

First, consumers have to be willing to spend money. Regardless of the conservative ideology, the US economy depends upon steady consumption by working Americans. The Reagan Republican theory incorrectly assumes that rich folks buying yachts and vacation homes catalyzes the consumer economy. Nonetheless, wealthy Americans have as much income as they have ever had but their purchases of Ferraris or diamonds has not been sufficient to boost the economy. Average Americans aren't consuming because they either don't have the money or are saving it because they are fearful.

Second, businesses have to be willing to hire. At the moment, many businesses -- outside of construction and commercial real estate -- have the funds available to hire but they either aren't hiring or are filling what should be full-time permanent positions with part-time temporary workers.

Third, the new jobs have to be decent jobs paying a living wage. Unfortunately, the Associated Press reported that of the 630,000 jobs created in 2010, 81 percent are low-paying service-sector positions. That's the sad backdrop to terrible unemployment data.

Since the Reagan presidency the number of decent jobs has steadily eroded. When a worker retires from a GM assembly line, and a job that pays good wages, he isn't replaced by his son or daughter; they go to work at McDonalds. There was an under-acknowledged "structural adjustment" that meant the US consumer economy could not function unless average Americans went deeply in debt: borrowed up to the limit on their credit cards or used up their home equity.

It's necessary to understand what went wrong with the US economy because fundamental changes are required to deal with the jobs crisis. So far the political rhetoric has been underwhelming. Republicans blame unemployment on the policies of the Obama Administration and argue the solution is to cut taxes, particularly for the wealthy. Democrats blame unemployment on the policies of the Bush Administration and argue the solution is to increase Federal spending. The New York Times correctly condemned both approaches noting that Republican policies produced the current economic decline and the "cut taxes to solve all problems" clearly does not work. The Times also described the Democratic approach as timid, failing to attack the systemic nature of the problem.

America has economic cancer and radical surgery is required. First, there has to be a massive redistribution of income by increasing taxes on both the wealthy and financial institutions (particularly those that were at the heart of 2008's economic meltdown).

Second, there has to be a second stimulus package that not only supports America's teachers and public safety workers but also strengthens the US infrastructure, in general. It's not logical to propose that American businesses provide better jobs without also ensuring that our schools produce workers who can meet employers' needs.

Third, the Federal government has to be involved in economic policy. The last thirty years has demonstrated that it's insane to assume the free market will do this. What we've learned is that the market follows the path of least resistance and dictates economic policy solely based on greed. Creating wealth for a handful of CEOs isn't consistent with the national interest. What are needed now are economic policies that produce decent jobs for average Americans.

The Federal government has to intervene and create the jobs that the greedy, shortsighted private sector hasn't provided.