OK, so it took two and a half years, but now almost every politician and pundit who matters, progressive and conservative alike, pretty much believes that the effective real unemployment rate today is on the order of 19%, and that accordingly the economy needs to create around 22 million new jobs in order to be near fully employed. The notable exceptions, unfortunately, are certain senior officials within the administration who continue to use the BLS's lower-by-half 'official' unemployment rate of 10% and to suggest that we need to create around 9 million new jobs.
With nearly everyone now starting his morning by chanting "jobs, jobs, jobs", what I find so puzzling -- and concerning -- is the ongoing debate in Congress between 'job creation' and 'deficit reduction' and the premise that they are mutually exclusive. Voters and workers -- who are the only ones who really count -- clearly hate unemployment much more and much more personally than they dislike deficits, which they barely understand. And if they are mutually exclusive, which I absolutely don't believe they are, then how right now, with the bogie being 22 million needed new jobs, can 'job creation' be losing out, as it seems to be.
The most important domestic policy issue right now is what to do about the jobless recovery we are mired in that has little or no prospect of evolving into a traditional recovery that will reinvigorate the middle class and correct the wage stagnation that plagues them. Even when the administration, in a completely unwarranted way, lauds the jobs figures, as it did last Friday when the 'official' May figures came out that showed "non-farm payrolls increasing by 431,000 jobs", the reality is that in real terms only 114,000 new jobs were created and that was only after including 411,000 new full-time but temporary Census workers.
This Recession is so acute that in order to get the nation's businesses back investing and hiring, we need economic opportunity of the sort that only large-scale Keynesian-type government intervention in sustained job creation can generate. So, before addressing the concerns of the 'deficit hawks' in Congress which we can't ignore, let's first talk first about the three government actions that we know would most immediately create millions of new jobs:
1. "New Deal-Like" Programs
(i) For the 3 to 5 million unemployed out-of-school youth, a group that burgeons in size every summer when another 6.4 million young people graduate from high school and college, a broad-based Municipal Youth Initiative that draws from our previous successful experiences with VISTA and CETA.
(ii) Community-based job creation programs for restoring the environment, providing child care and tutoring, cleaning up abandoned buildings, and maintaining parks and public spaces. The government should also take steps within existing programs such as the Workforce Investment Act to provide additional incentives for job creation and training in needed areas such as nursing, engineering and math & science instruction.
(iii) Create a Teacher's Aid Corps to complement the existing Teacher's Corps, to include training adapted from Teach for America's highly successful program.
2. 'Buy-Domestic' Government Procurement Requirements that mirror those of our trading partners, which should create on the order of at least a couple million permanent jobs, mostly in manufacturing. Federal government purchases run around $3 trillion a year and comprise about 20% of the U.S. economy, yet the U.S. is almost alone among the major developed nations and China in not having a significant buy domestic program. At the same time, we need to enact forms of investment criteria for public resources not covered by these requirements, such as use of domestically produced parts and components and return of idle manufacturing capacity to productive service.
(i) A 10-year program of significant public investment to upgrade and rebuild the nation's infrastructure, which still has at least $3 trillion in unmet needs. Provided it has associated buy-domestic requirements, each one billion dollars invested in public infrastructure creates on average 25,000 permanent American jobs, and when the investments are in high-tech initiatives, the figure is much greater, on the order of 40,000 permanent jobs.
(ii) A fully-funded and fully-authorized "National Infrastructure and Production Base Bank" that would enable the federal government to leverage the private capital markets to fund infrastructure spending. (Since the Bank would function completely removed from the nation's yearly budget, while offering the opportunity to create millions of jobs and restore some of our global competitiveness, how is it that the administration can muster only 'vocal support', token proposed funding and a limited charter?) The Bank needs to be able to issue bonds with relatively long maturities and a minimum rate of return guaranteed by the Treasury, and to work side-by-side with large-scale private-sector funders, both domestic and current account surplus countries.
These major new-jobs efforts will lead to more deficit spending in the very short term, but only in the very short term. However, if intelligently conceived, they would, because of their associated large-scale job creation, be at least deficit neutral over the next decade and, most likely, even substantially deficit reducing.
Nonetheless, the deficit hawks in Congress are not without their due, in part because so much of that first trillion dollars or so of stimulus money didn't create a meaningful number of jobs and/or wasn't spent very effectively. The hawks are also 'owed' because of the large (and to date unexplained) disconnect between President Obama's recent commitment to get the federal deficit down to about 3% of GDP by 2015 and the International Monetary Fund's very contrary conclusion that by 2015 America will actually have a structural deficit more than twice this figure (i.e., 6%-plus of GDP).
Even though it's going to be hard right now to label anything 'additional stimulus', we can't ethically or economically run away from the major fiscal efforts needed to create those missing jobs. So, in the best tradition of "Pay-Go", a concept consistently talked about but just as consistently ignored, there are four very simple ways to raise more than $200 billion a year to pay for all the job creation we need, all aimed at only the top 3% to 5% of taxpayers:
- Enact a "financial transactions tax" on stock purchases, non-issuance long-term corporate debt, derivatives and hedging transactions other than those of the middle class and their IRAs and mutual funds. This FTT would be entirely in keeping with President Obama's demand that the country shift away from growth based mostly on high-income financial speculation, and, now knowing how painful the 'alternative' is, it would be a very meaningful incentive to move financings overall to longer-term and thus more prudent time horizons. A fair and balanced FTT would produce tax revenues of up to150 billion each year.
- End "tax breaks for companies that ship jobs overseas", as was promised repeatedly during the 2008 Campaign, which would raise at least200 billion over 8 years.
- Raise the top tax rate on long-term capital gains back to the 28% rate signed into law by President Reagan, which would raise about25 billion per year.
- Classify and tax 'carried interest' as ordinary income at its 35% rate rather than as a capital gain at its 15% rate, which would generate around10 to12 billion per year.
Now let's talk about the latest Jobs Bills which Congress is considering, which range in amount from $50 to $134 to $200 billion. By far, most of this money would be spent on extended unemployment benefits, health subsidies for the unemployed, and Medicaid money for the states, and while the moral imperative behind these welfare-type outlays is indisputable, they are not really "stimulus", which is supposed to create permanent improvements, especially in job growth and quality, in stagnant or broken economies. And we should be especially concerned that having already 'gone to the stimulus well' so many times, whatever this Congress does next will be their last whack at stimulus until at least the next Congress, even if we find that the country is still short millions of those urgently needed jobs, as I believe will be the case.
So, rather than another poorly designed and seriously underfunded 'stimulus' effort, let's take the three government job creation actions that we know will work, let's more than 'pay for them' currently in ways that are completely fair and balanced, and let's acknowledge that there is in fact a readily achievable middle ground solution for, on the one hand, those American voters and workers who 'hate unemployment' and political leaders, on the other, who are rightly concerned about our nation's ballooning deficit.
In quickly closing, let me say that while there is a lot of talk coming from the White House regarding these issues, there seems to be a complete absence of 'operational urgency' given its other priorities. And since operational urgency is the here-and-now sine qua non, it's going to have to be Members of Congress who get these balls rolling, some of whom have been resolute and informed on these issues from the earliest days and some, unfortunately, not nearly enough.
Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.
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