We all know that the economy is now recovering. The stock market is up by more than 50 percent from its March lows and Alan Greenspan, the former Maestro, is now projecting a 3.0 percent growth rate for the third quarter. Banks are again reporting strong profits and the Wall Street bankers are getting bonuses that are approaching their housing bubble peaks.
Everything is bright and sunny again, unless you have to work for a living. The news here is less good. The economy lost more than 260,000 jobs in September, with the unemployment rate reaching 9.8 percent. The 10.3 percent unemployment rate for adult men is the highest rate since the Great Depression. And real wages are headed downward.
Even worse, the unemployment rate is virtually certain to keep rising in the months ahead. While job loss in manufacturing has slowed, construction is continuing to shed jobs at a rapid rate. Most of this job loss now stems from the collapse of the bubble in nonresidential construction. The retail sector is laying off workers at a rapid pace as consumers cut back spending in response to the loss of $8 trillion in housing bubble wealth. And state and local governments are now laying off teachers, firefighters, and other workers in response to the huge deficits created by the recession and the collapse of the loss of property tax revenue due to the collapse of the housing bubble.
While tens of millions of workers are facing unemployment or underemployment, and millions are facing the prospect of losing their homes, the instinct among the Washington punditry is to just sit back and wait. After all, now that the banks are all right they don't see any urgency for government action.
There are certainly many people who believe that the only role of government is to support bankers and other wealthy people who could not get by on their own. But for those who think that the government has the responsibility to prevent large segments of the population from being mired in unemployment, homelessness and poverty, there is much that can be done.
First, we should be clear, the stimulus passed last February did work. Go ask your governor or mayor how many more people they would be laying off right now had it not been for the federal aid provided by the stimulus. Also, millions of unemployed workers are seeing bigger unemployment insurance benefits (including health care coverage) because of the stimulus. Extended and increased benefits not only help these workers, but when they spend this money, it helps boost the economy. The same is true of the tax cuts directed toward ordinary workers that were included in the stimulus package.
The stimulus package has likely kept the economy from losing one million more jobs by this point. If the prospect of 10 percent unemployment sounds bad, let's start talking about 11 to 12 percent unemployment. That is where we would be going if Congress did not pass the stimulus package.
But the key point is that we desperately need more. It is not fair that tens of millions of people should suffer because Alan Greenspan and Ben Bernanke were too dumb to see an $8 trillion housing bubble.
There are many ways that the federal government can boost demand, with more aid to state and local government probably topping the list in terms of priorities. However, to get large numbers of workers back to work quickly, the best route is a tax credit to shorten normal working time.
The basic logic is very simple; the tax credit effectively pays employers to hire more workers, with each worker putting in fewer hours. If we used the tax credit to pay employers of 100 million workers to work 5 percent fewer hours, while keeping their take-home pay unchanged, then in principle they should want to hire 5 percent more workers, or five million workers. This can be done quickly and will involve more employment in the private sector, not make work public sector jobs. That should make the conservatives happy.
There undoubtedly will be some gaming of such a tax credit, but there is some waste/fraud in everything we do. The prospect of having 15 million people unemployed for much of the next two years is unacceptable. Having used trillions of dollars in loans to bail out the richest people in the country, it is time that the government take some bold steps to help everyone else.