A Wake Up Call on Jobs

President Obama has announced a White House Jobs Summit for next month. At least that's the beginning of recognition that the unemployment rate is unacceptable. The measured rate is now 10.2 percent, but if you count people who have given up or who are involuntarily working part time, the real rate is over 17 percent.

This spells political catastrophe for Democrats in the 2010 mid-term election, as foreshadowed by the recent losses in the New Jersey and Virginia governors' races. But Obama's top economic advisers, such as Larry Summers, don't seem to get it. They continue to resist the idea of a second stimulus package.

"I think we got the Recovery Act right," Summers recently told the Washington Post's Alec MacGillis, adding, "We always recognized that America's problems were not created in a week or a month or a year and that they were not going to be solved quickly. We designed the Recovery Act to ramp up over time, through 2010, and to make sure that the investments we made were important for the country's future."

And other senior Obama officials such as White House Chief of Staff Rahm Emanuel and Office of Management and Budget Chief Peter Orszag are more concerned with cutting the deficit than spending more money to reduce joblessness. According to the Wall Street Journal, Orszag is sympathetic to the idea of a commission to cap government spending and Emanuel is floating the idea of spending some of the money that has been repaid from TARP bank bailouts on deficit reduction.

But this is putting the cart before the horse. We need larger deficits now, in order to get a real recovery going, so that a healthy economy will allow us to pay down public debt later. Specifically, we need to focus on three big things:

State and Local Fiscal Relief. You often hear that outlays on public infrastructure are not a good source of stimulus because they take too long to plan. But emergency revenue sharing to states and localities takes effect almost instantly because it prevents cuts in existing programs and layoffs of existing workers. Today, states and localities are not only cutting back outlays because their constitutions require balanced budgets; they are raising taxes, usually regressive taxes. According to the Center on Budget and Policy Priorities, the three year state fiscal gap 2010-2012, will be at least $470 billion. So more than half of the federal stimulus is undermined by state and local belt tightening.

Accelerated Spending on Public Works. The Roosevelt administration, in an era before computers, got a lot of public works spending going in less than a year. There are massive unmet needs in public infrastructure. The Obama administration needs a short term and a long term strategy. Projects such as school repair and expansion, which can get underway in a few months, should get fast-tracked funding commitments right away. Longer term needs, such as smart electrical grids and modernization of water and sewer systems, expanded mass transit, and green energy, should be targeted for funding in 2011, so that plans can get on the drawing boards now.

Wage Subsidies. It is fashionable among American conservatives to make fun of the "rigidity" of European labor markets. But Germany today has a flexible and creative program of wage subsidies. The result is that the German unemployment rate has pealed at around 8 percent while ours has crashed through 10 percent. German companies suffering a downturn because of recession can get wage subsidies for their workers. Workers can also be put on reduced working time (kurzarbeit) and the German unemployment office will make up most of the loss in their take-home pay. According to the German government, a worker cut to 40 percent of his or her normal hours will end up with about 85 percent of usual take-home pay. Today, some 1.4 million German workers have been able to keep their jobs and most of their earnings thanks to the kurzarbeit plan. German firms keep their workers connected to the company, workers hold on to their jobs, and there are also incentives for workers on reduced time to use their spare hours to get additional training.

All told, we need additional federal spending in the range of at least $500 billion. But won't this increase the deficit? Yes it will, and that is the whole point. We are in a classic downward spiral of reduced household income and wealth, and a weakened financial sector. Many businesses face reduced consumer demand, compounded by a reluctance of banks to advance to any but the most blue chip borrowers.

In this climate, GDP growth can turn positive but companies are reluctant to hire. Full recovery will not resume spontaneously based on household or business demand, and the only source of increased demand to break the cycle is the government.

One of the most widespread and mistaken assumptions is that this bleak future is just baked into the cake. Because of the legacy of the financial collapse, and the limits of deficit spending, supposedly, we are just stuck with it. You hear that in testimony from Federal Reserve Chairman Bernanke, and it is repeated mindlessly by the media.

This fatalism is just plain wrong, and history's great counter-example is World War II. In 1939, unemployment was stuck around 16 percent. GDP growth after 1933 was solid -- 6 to 10 percent a year with the exception of 1937 -- but the wounded economy was just not generating net jobs. Many expert commentators of that era concluded that there was something about the maturity of capitalism, or the replacement of human workers by machines, that consigned the economy to a chronic structurally high, rate of unemployment.

Then World War II broke out. The US government borrowed huge sums to recapitalize US industry and re-employ and retrain US worker in war production, to employ 12 million men and women in the armed forces, and to invest massively in science and technology to develop advanced weapons and substitutes for materials in short supply. The unemployment rate dropped to 2 percent by 1943. Deficits were enormous, as high as 29 percent of GDP in 1942 (this year they will be about 10 percent) but the economy grew at 12 percent a year for the four years of the war, and the high unemployment of the 1930s never returned.

The deficit hawks of that era worried that the very large national debt would be a millstone around the economy. At the end of 1945, the debt was 122 percent of GDP, compared to about 55 percent today, but of course the end of 1945 was the beginning of the 25 year postwar boom -- the longest sustained boom in US history. GDP grew at 3.8 percent a year. The average deficit was about 1.1 percent, and with the economy growing much faster than the debt, the debt to GDP ratio declined to about 30 percent by the 1970s. So, we can grow our way out of debt -- but we need to get a real recovery going first.

If past Obama White House Summits are any guide, this one will invite a broad cross section of people: trade unionists and deficit hawks, investment bankers and labor economists, industrialists and Republicans; and everyone will speak of the importance of their pet project for job creation. That's not good enough. This is not a moment for another White House gab fest. It's a time for progressive leadership.

Robert Kuttner is co-editor of The American Prospect, a senior fellow at Demos, and author of Obama's Challenge.

 

Comments

[madame48]

we should start by really changing the laws that let the Wall st sociopaths & equity companies cannibalize our economy. Jail time, real jail time. Get rid of the corrupt lobby lap dogs of both parties in Congress. And yes, Roosevelt & Kuttner are right. My relatives had CCC jobs that helped keep the families off the street. The deficit can be cleaned up with ending our continual wars, I never hear them cry deficit over those billions.

[hm1342]

Mr. Kuttner fails to mention one important aspect with respect to our massive economic growth after World War II. Specifically, he forgets that America was the only major economy left standing that had it's manufacturing base untouched by war. So our economic boom was more the result of the U.S. filling the manufacturing void for almost thirty years until Europe and Japan became competitive. That situation no longer exists, so his hopes of our economy growing faster than debt might be a little overly optimistic. Even before the economic downturn, the previous administration practically doubled the national debt and it's only gotten worse with TARP and the bailouts.

[PATina]

I really like the idea of wage subsidies. A lot of people I know had their hours and/or wages cut... and something like this would really help them out.

[booki]

thank you, you HIT IT! 'another GAB FEST!" who knows how many millions they will spend on the event.
i am tired of waiting for them to "gab:" they should have :"gabbed" months ago.
there are no jobs, and there won't be any new jobs..
stop giving the billions to the banks, with no conditions­..... think about direct lendiing..
to both : small businesses, and people faced with foreclosure (who can afford to keep their house w/a decent rate).

another , belated "gab session" doesnot cut it!

[ovologo]

This is informative, may be not complete, but better that the blaming the other side. Republicans are bad or Democrats are bad. Only blaming leads nowhere.

For BILLW8017: do you asking or recommending to leftists become Communist? If you recommending, you are out of your mind and must leave to China. Why should you wait for, just go, and be happy over there.

Everybody should read ADOSEOFSANITY

[ndhenry]

I agree with most of what Mr. Kuttner's analysis in the article. There is a need for more state and local fiscal relief. Additionally, there does need to be more spending for public works projects to include a massive acceleration in educating displaced workers, new workers to the workforce, and the chronically under employed.
I also agree with "theycallt­hewindmari­ah" in her assessment that a comprehensive healthcare plan to include more training of health-care workers and investment in hospitals and clinics.
Values have changed, the world of work has undergone a dramatic shift - let's face it, outsourcing to other countries to mitigate profit is here to stay.
A large part of economic recovery should focus on public school education and worker technical skills. We must adopt the attitude that algebra, calculus, geometry, and trigonometry are skills students as young as ten years old can grasp. Civics, courses devoted to critical thinking, early education in foreign languages, and geography should be compulsory.
Technical vocations should include an awareness that even less demanding occupations require more than a fundamental grasp of computer technologies. Smart electric grids are not mechanical anymore. Neither are mass transit and water works projects. In order to occupy those jobs workers need a comprehensive grounding in computer skills that go beyond office suite applications. Projects should include an intensive (expensive) educational outlay for computer skills extended to every person in the workforce including displaced workers and the marginally skilled.

[skeptical1]

It would seem to me that if a way to enrich the wealthy as well as Goldman Sachs and their Wall Street colleages could be found under the guise of emplyment, then it would already be in the works. Kuttner is right, of course, in his arguement and that's what a majority of Obama voters thought that they were supporting last year. Unfortunately, it would appear that Obama has scattered his energies and forgotten his base of support as his main advisors concentrate on feathering the nests of their wealthy benefactors.
It is true that the situation Obama must confront is beyond anything previously imagined. Hopefully, when he gets his orders from the Chinese this week, we will have a better idea of what they are willing to finance in order to sustain demand for their production. In the meantime, as we continue to squander our resources on endless war, who is to say that our fate will be any different than that of the USSR?

[KristineKB]

Neither our population nor our economy "look" anything like they did at any other time in history. Our nation and our people have changed. We are more self-aware. We want more control over our own destinies - more freedom to choose to be who we are - AND, of course, we all need to eat. The piece-meal manufacturing (and customer service) jobs that have been outsourced overseas were a step up from the subsistence livings of farming, fishing, and hunting; but they did not offer a path to individualism. Security? Sure, but while many disparage the emergence of "the me" generation(s), there is another side to the coin. Perhaps, it was necessary for the security blankets to be taken away so we could build new infrastructures to route money through our economy - with personal enrichment (beyond $ and status) embedded in them. Do we really want to move toward one gargantuan hierarchy in which we are all paid $10 for our work and then we pay back $9.50, so they can afford to pay us next week? That's what will happen if we continue to think of our government as a good infrastructure for redistributing money... There is no evidence that any government ever has - or ever will - conduct itself in the interest of the masses. Yes, we need job creation - creative measures by the creative people that we have evolved into. Guidance and perspective can be gained from the past - not "off-the-shelf" solutions for

[idest]

Seems to be working out okay in Germany. Don't let your fear of the different cloud your judgment.

[mountainweb]

Sadly Robert, a key part of the jobs problem is companies that fire American workers and hire less experienced workers in India with little concern as to the quality of work. Time to tax the crap out of American companies that have a large percentage of workers from or in India or other cheap labor markets. Now is the time to force hiring of Americans and encourage small business growth. Paying huge bonuses to bank vp's with taxpayers money has got to stop.

Will obama take leadership, no, he is afraid to truly lead because then he would have to take a stand and he is still voting present.

[PamelaJane]

Can we all just please give the President a break? He hasn't been in office a year yet and he has already made significant inroads on the economy and healthcare. The President never promised to be a sword wielding, chest thumping, leader President. He organizes people to get the job done and takes the time to get the job done right. And when it comes down to it, getting the job done right is what this country needs. We have had decades of fast fix bandaids and look where it has gotten us. Lets give the President the benefit of the doubt and a little trust.

[GetACluepeople]

Hopefully something constructive and not just a beer...

[seawolf77]

You are wrong on so many points it's breath taking. First of all the grand "miracle" that is the US economy was predicated on one thing : cheap energy. That is now gone. The only jobs worth creating right now are those that recognize that fact, embrace it. The so called green economy is the only economy left and the republicans are going ot fight it till thier last dying breath becasue that's what they do, defend the untenable until it collapses. The shock that brings high oil prices is right around the corner and this time they are not coming back down becasue China and India want their share. The mission that was accomplished in Iraq was the securing of oil supplies for the IMMEDIATE future.

[theycallthewindmariah]

I recommend a HPA, Health Progress Administration, that would 1) train a vast number of new nurses, doctors, aids, and health care support staff to work in 2) a network of new, modern health department service centers in every neighborhood in America or 3) in new, cutting-edge national hospitals.

This is not about health insurance. It's about the provision of service, the education of America, jobs that can't be shipped out, and infrastructure.

The investment has to center in human capital.

[toje]

I just read an article in The Hill that states that Mr. Kuttner will be a main invitee to the jobs summit. So read his post well, and take it seriously, because this will be what the President, Reid, and Pelosi will be listening to. They will be told, once again, that we should become more like Europe...s­low, stagnate, plodding, safe. Higher taxes. Greater protection. Fewer opportunities to create wealth at all levels except high, post government administrative levels. Govern from a position of cowardice.

When are we going to get the over analytical, hyper nuanced, useless gab festers out of the conversation and bring some real job creators to the table?

[idest]

LOL, sorry to break it to you pal but the world is a hyper nuanced place that requires analysis for any hope of success.

[mogens]

The main problem for the progressives in your country is that they have no power base.
You have 2 right wing parties, one a little bit more social than the other.
You have lost the fight over the discourse and the agenda, believing all the crap the rich has told you about the importance of individualism and the problems of cooperation. Then they can single you out and take you down.
You have to cooperate. The only option left are the labor movement.
They has also lied to you about the state of the rest of the world.
Your standard of life is not higher than EU15, but in many ways lower.
Few of us would swop with you.
You have to accept that a turn around will take time. The welfare states has taken decades to build, and only the staying power of many hard working union people ever made it happen.
Good luck and good fight.

[jmpurser]

Beautifully said. Fanned and faved.

[skeptical1]

Little chance of the labor movement making waves. It is no coincidence that the Taft Hartley Act, restricting labor rights, and the National Security Act, creating the CIA, were the only significant laws passed by the "do nothing Congress" in 1947. Every society must contend with the inherent conflict between labor and capital and that happened long ago here in the US.
And, little if any chance of labor law reform passing and America moving beyond technically legal unions (as per the International Labor Organization) with "blue dog" dems working hand in glove with repubs to maintain the status quo. The record for failed cloture votes on filabuster was in 1979 for labor law reform under these very same circumstances.
We glory in the spectacle of circus as passive observers as multinational corporations corrupt our political process and undermine our future. For the few at the expense of the many...pub­lic subsidy for private profit - the free enterprise system of modern America.

[PATina]

Good post.

[freedom4allau]

Next month???????? It needs to be freakin next week!!!!!!