As part of the Roosevelt Institute's 10-part series on the Jobs Crisis, running on the New Deal 2.0 blog from Nov. 12-25, I was asked to reflect on what can be done to get Americans working again. Here's my take.
At 10.2%, unemployment is now at its highest level since 1983. Nearly 16 million people can't find jobs even, though we are constantly being told that the worst recession since the Great Depression has officially ended. Yet instead of trying to revive the productive economy, most of the Obama administration's recovery efforts still remain focused on cardio-shock treatment for Wall Street. The president still seems curiously hamstrung by his Herbert Hoover-like devotion to fiscal rectitude: he wants to spend but not add "one dime to the deficit," as he announced at his Congressional address on health care in September. He does this even though deficits are a natural consequence of slowing economic growth, falling tax revenues and higher social welfare payments.
To all of the "Chicken Littles" (including the president), who fret about "excessive" government spending, we would simply point out that it is far better to deploy government spending in a way that reduces unemployment instead of settling for having it rise as a consequence of this spending.
We therefore suggest a new approach: Government as Employer of Last Resort (ELR). The U.S. Government can proceed directly to zero unemployment by hiring all of the labor that cannot find private sector employment. Furthermore, by fixing the wage paid under this ELR program at a level that does not disrupt existing labor markets, i.e., a wage level close to the existing minimum wage, substantive price stability can be expected. A sizable benefits package should be provided, including vacation and sick leave, contributions to Social Security and, most importantly, health care benefits, providing scope for a bottom-up reform of the current patchwork health care system.
Government as ELR would not be introducing another element of intrusive bureaucracy into our economy, but simply better utilizing the existing stock of unemployed, who are now dependent on the public purse -- especially the chronically long-term unemployed. The current system we have relies on unemployed labor and excess capacity to try to dampen wage and price increases; however, it pays unemployed labor for not working and allows that labor to depreciate and develop behaviors that act as barriers to future private-sector employment. Social spending on the unemployed prevents aggregate demand from collapsing into a depression-like state, but little is done to enhance future growth and demand, which can be done via the ELR by providing the currently unemployed with jobs, greater education and higher skill levels.
The ELR program would allow for the elimination of many existing government welfare payments for anyone not specifically targeted for exemption. It would also command greater political legitimacy, as society places a high value on work as the means through which individuals earn a livelihood. Labor would welcome the safety net of a guaranteed job, and business would recognize the benefit of a pool of available labor it could draw from at some spread to the government wage paid to ELR employees. Additionally, the guaranteed public service job would be a counter-cyclical influence, automatically increasing government employment and spending as jobs were lost in the private sector, and decreasing government jobs and spending as the private sector expanded. It would therefore remain a permanent feature of our economy. In effect, it would act as a buffer stock to put a floor under unemployment. The program helps maintain price stability whereby government offers a fixed wage that does not "outbid" the private sector, but simply creates a stabilizing floor and thereby prevents deflation.
A more or less "free market" system does not (and, perhaps, cannot) continuously generate true full employment. And no civilized nation should allow a large portion of its population to go without adequate food, clothing and shelter. One of the best features of the ELR program is that it creates a stock of employed people, rather than a buffered stock of unemployed, where social capital depletes rapidly, and several long-term social pathologies develop.
The way we're approaching our labor force now isn't working. It's time to try something that can put as many Americans as possible into productive employment.
This post originally appeared on New Deal 2.0.
I've been writing about reform for more than a year, explaining the issues as they come up. While I'm happy to have done it, and will keep doing on doing so, I feel President Obama needs to do this too.
It would be much better to offer near-free gov't loans direct to credit worthy businesses, homeowners and municipalities and cut private bankers out. Can you imagine the interest expense that could be saved? Attack the real villains starting with compound interest and making money with money which has 95% of the wealth in 1% of the populace whom also take 70% of so called "earned" interest.
Since wealth would no longer aggregate at the top, there would be enough purchasing power from the near elimination of interest to support full employment and a much higher standard of living for most, especially if we promote US and service sector spending. We Americans like to spend so with expenses reduced drastically, money would no longer be wasted on interest and would go to purchases and services. Wages would rise and real economy would do very well.
What exactly is it that you intend to 'employ' all those you are paying to do for their ELR-based compensation? Sit around on their hands?
I'm not saying the ELR idea is a bad one - it's just not that simple.
Let's just say you reduced unemployment to zero by hiring 16 million Americans. How would you set up offices to manage and administer their workload and oversee their performance in whatever public works they would perform? How would you buy enough desks, computers, pens, phones....all of the necessary things one needs in order to manage an effective business, non-profit, school or government agency?
This is, quite simply, the dumbest thing I've ever read in my life. Speak of Leviathan...
As for funding, tell congress, "If you don't want your unemployed constituents to have a job vote no, i f you do vote yes."
We also have an impressive rail, highway and waterway network, with environmental concerns hamstringing much of what we might otherwise get to work on (Floridians well remember the abortive "cross-Florida barge canal" and there is equivalent silliness gathering cobwebs in many other states).
That doesn't mean that there aren't economically sound projects that require a lot of manpower that we couldn't identify and fund. The key would be to find things we get a lot of payback from, whether in this country or even overseas--those you aid become your customers. One thing this country lacks is a tube freight system. Other cities (like Tampa) badly need light rail.
In the 1932 campaign, candidate Roosevelt blasted Hoover for running up the deficit in a famous speech in Pittsburgh. As president, FDR managed to give the appearance of fiscal rectitude by designating his public works spending as emergency spending the way the Bush administration kept the costs of the Iraq War off the books by designating it as emergency spending. It might have been wise for Pres. Obama to also declare the stimulus and other spending to combat the recession as emergency funding, but then he would've been accused of being just like Bush.
We don't know yet whether Pres. Obama is simply paying lip service to the fiscal scolds in order to tamp down very real public concerns over government spending. My point is that if you're going to accuse Pres. Obama of being Hoover-like based on what he's said about not adding to the deficit as opposed to what he has done or has yet to do, then by your logic the same would've applied to FDR.
Lastly, the only true-blue progressive in the Obama administration is Hilda Solis, so I concede the point that FDR had more progressives in his cabinet. But as to what progressive things Obama has done so far, if a $500 billion public spending program (through ARRA, minus the tax cuts) and proposing national health care reform through new sweeping regulation, direct subsidies, and a public health insurance plan (limited as it is) aren’t progressive, then I don’t know what is.
Therefore, a realistic jobs program needs to focus on small business incentives. The new employee generates his own income and provides taxes to repay the incentives.
A Human Investment Tax Credit Program aims at 6 million new jobs and funding 4 million new entrepreneurs. It should consider:
1. A $3,000 per person tax credit for existing employees. This credit limited to $30,000 for a sole proprietor and $60,000 for a corporation.
2. A $4,000 per person tax credit to employers for hiring. This credit would be $6,000 per person where individuals hired are under 20 years of age. Credits would be limited in amount for each employer to perhaps $40,000 per year for a sole proprietor and $200,000 for a corporation.
3. A $2,000 maximum tax credit per person to provide a Workshare Bonus to employees who work short weeks and spread available employment.
4. An $8,000 maximum tax credit for self-employed individuals to facilitate self-employment.
5. A $2,000 per person training credit to employers who participate in training programs to improve job related skills. Again, the amount would be limited with primary encouragement to small businesses.
6. A $2,000 credit to corporations to match or stimulate expanded equity ownership by employees.
These suggested incentives can readily be refined and voted into law. That should be an urgent order of business.
See the website: http://www.aesopinstitute.org the ultimate goal is jobs for all who seek them.