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America Can Attain Full Employment With A Bold Approach To The Jobs Emergency

America Can Attain Full Employment With A Bold Approach To The Jobs Emergency

A new report from the Rediscovering Government Initiative lays out 15 ways the government can create more and better jobs starting right now.

After five long years, the economy has at last produced enough new jobs to compensate for the 8 million lost in the Great Recession of 2009. But in that same period some 7 million more Americans reached employment age, and we have only produced about half the jobs we need to keep up with population growth. To make matters worse, the jobs created during the recovery pay on average much less than those lost. Yet rather than pulling out all the stops to create more and better jobs, too many politicians and economists tell us we can’t move too quickly. They cite limitation after limitation: inflation fears, budget deficits, skills mismatches, and so on. Americans deserve better than this defeatism. We deserve bold action.

In a new report, A Bold Approach to the Jobs Emergency, the Bernard L. Schwartz Rediscovering Government Initiative offers 15 ideas that could get us back to true full employment and at the same time build a foundation for rapid economic growth in the future. We are demanding a full-court press to recreate the economic opportunity that America once offered. We emphasize some ideas that have been heard before, but many that are forced to the back seat or are hardly talked about at all.

There are taboos among policymakers that are holding us back. Above all, we must take fiscal stimulus seriously again. Today’s economy operates far below its growth potential. The fiscal stimulus we need should not only make the social safety net whole but also be tied to aggressive investment in transportation, communications, and clean technologies that have been badly neglected.

The federal government can itself create useful, good-paying jobs in transportation, teaching, and health care. A carefully crafted federal job creation program, as was successfully enacted under FDR, can work today. Fifty billion dollars‘ worth of new jobs could go a long way toward helping Americans.

The repressive effect on jobs and wages that results from aggressive Wall Street practices is all but invisible in Washington. Academic economists are almost as bad as the Washington think tanks in paying too little attention to how Big Finance can undermine both jobs and wages. Our report highlights the findings of researchers such as Eileen Appelbaum, formerly of Rutgers, and Rosemary Batt of Cornell, who show that the leveraged buyout and privatization crazes have on average led to many lost jobs and significantly less spending on R&D. It also showcases the work of William Lazonick of the University of Massachusetts, Amherst, who has long called attention to how massive corporate stock buybacks may help shareholders in the short run but hurt the American economy by diverting investment.

Poor wages are also part and parcel of America’s economic failure. Today’s typical household earns no more after inflation than it did almost 20 years ago. Only 44 percent of Americans think they are middle class, the lowest level recorded. However, until fairly recently, raising the minimum wage has also been taboo. The bill before Congress to raise the federal minimum wage from $7.25 to $10.10 may still not pass, but intelligently designed studies suggest such a hike could lift not just 1 million, as the Congressional Budget Office has too conservatively estimated, but 6 million people out of poverty and provide raises for about 25 million people. Similarly, we need an expansion of the Earned Income Tax Credit to childless adults, which the president supports.

Most tragically, we neglect our young. Six million or so Americans ages 16 to 24 are neither in school nor have a job. Dozens of local agencies have been created to place these “opportunity youth” on a middle-class track. But they badly need to be scaled up, and federal support is the only way to do so.

The new interest in funding pre-kindergarten in New York City and elsewhere is welcome. But help has to come much earlier in the lives of children in poverty. One in every five American children under the age of six live in poverty, the second-highest rate in the rich world. A growing body of research shows unambiguously how poor children are cognitively and emotional deprived—and how bleak their futures inevitably are. In America more than in any other rich country, inequality begins at birth. We need to address this crisis to begin building the economy of the future.

If America wants a strong future, it had also better invest more in technological research. Government research has been the heart of the innovation economy, as economists have increasingly shown. But Congress mindlessly cut such research last year. It must be revived and expanded. Other recommendations in our report include investments in energy, national paid family leave policies, and revamped workforce training.

The decline of work is not inevitable, and there are more ideas than the 15 we present in our report. We calculate that we can get the unemployment rate below 5 percent and raise wages with a combination of such programs, without incurring a dangerously growing budget deficit.

But bankrupt ideology, narrow politics, and bad economics are robbing the nation of its confidence and hope for the future. A comprehensive jobs plan is not even being attempted in America. Failure becomes contagious. Let’s end the fatalism about employment in America now and win back the nation’s hard-won optimism.

Jeff Madrick is the Director of the Bernard L. Schwartz Rediscovering Government Initiative.

Cross-posted fromRediscovering Government.

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo: Samuel Huron via Flickr

The Congressional Budget Office Should Serve The People, Not Politics

The Congressional Budget Office Should Serve The People, Not Politics

The CBO’s projections often miss the mark, but its mandate is to produce a politically useful number.

The admirable Jared Bernstein entirely misses the point in his post about recent critiques of the Congressional Budget Office. Floyd Norris, Zachary Karabell, and Dean Baker have noted how often the CBO gets it wrong, and how it influences policy in damaging ways. I wrote last March in Harper’s Magazine that there should be a shadow CBO to correct and decipher CBO pronouncements.

Jared counters that CBO economists are simply following ”state of the art” economics most of the time. What state of the art? Hasn’t confidence in “economic science” been sorely tested by the 2008 crash? It should have been tested long before that tragic event. In 2003, Robert Lucas said that we had solved the problems of depression. In 2005, Milton Friedman said that he wondered why so many people were worried about the economy because to him it appeared so stable—this at the height of the subprime mortgage boom. In 2008, Olivier Blanchard said macro was in good shape.

Jared notes that the CBO assumes public spending will crowd out private spending as an example of how it follows textbook economics. That’s right, it does, and often entirely incorrectly. Textbook economics is getting a grilling by many macroeconomists these days.

The point is that the CBO’s mission is all wrong. Jared kind of acknowledges this; he adds in parentheses they should give ranges, not single-point forecasts. But that is not a parenthetical point. It is the heart of the matter.

CBO economists can’t make single-point projections with any confidence, so why do they? These forecasts are often terribly misleading. The recent minimum-wage report, as I noted on Next New Deal, is a perfect example. Everyone took the CBO’s midpoint number as an actual projection. Why? Because the CBO said it was in just those words. That is its mandate. In addition, the CBO’s “non-partisan” label is taken to mean “objective,” and to non-practitioners, its projections simply reflect some hard, politically unbiased analysis.

Just like Wall Street bankers, politicians want a forecast that is a single number they can use. A range of projections does not have as much political force as a single number with the authority of the “non-partisan” CBO. In other words, the CBO is meeting the needs of its clients, not the needs of the nation.

It’s time to change the CBO’s mandate fundamentally. These economists should produce ranges, they should explain as much as the project, and they should get over their habit of hiding the most important qualifications of their analysis in footnotes and appendices, thereby covering themselves (and perhaps relieving their guilt).

The state of economics simply doesn’t warrant the certitude that the CBO almost always implies—and then qualifies, as I say, in the footnotes. It would be very useful if Jared Bernstein himself led a charge in reforming the CBO’s mission. That doesn’t mean firing the economists there. It means having them do what economists can do, and not do what they can’t.

Jeff Madrick is a Senior Fellow at the Roosevelt Institute and Director of the Bernard L. Schwartz Rediscovering Government Initiative.

Cross-posted From Rediscovering Government.

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo of CBO Director Doug Elmendorf: University of Michigan’s Ford School via Flickr

A CBO Report Shows How Obamacare Will Help The Working Poor

A CBO Report Shows How Obamacare Will Help The Working Poor

Never mind the conservative fear mongering. The Affordable Care Act’s subsidies will boost the economy and free workers who were locked into their jobs.

The attack on the Affordable Care Act by conservative Republicans after the release of the Congressional Budget Office’s new report was desperate. Bravo to much of the media for setting the story straight almost immediately. But so strong is the anti-government bias involving social policy that critics hardly stopped to think.

No, businesses were not about to issue a couple of million pink slips, as Senate Republicans put it. Rather, because of the subsidy to buy health care, people could choose to quit their jobs or work fewer hours and lead a marginally better life. Heaven forbid.

And that’s the real rub. Republicans must think this is a new dole for the undeserving. But actually, it’s another example of how perverse and unfair the health care system in America is. In other words, according to CBO estimates, 2 million people or so were basically working so they could get insurance. Working makes acquiring health care cheaper because you are in a group plan and the employer will often help subsidize the price. (Of course, that subsidy partly results in lower wages for the worker.)

Because many Americans work just to get health care, they are locked into their jobs. And this may reduce their desire to bargain for higher wages out of fear of being fired.

A few points should be kept in mind. The determinedly objective CBO is by no means always right. It is a peculiar construction, in fact. The CBO is not allowed to make sensible assumptions about the economy, but instead has to stick to the current law. So it can’t anticipate, except as an exception to the main forecast, a change in tax rates or stimulus. The CBO builds in a recovery from a recession automatically—a clockwork interpretation of what economists know as Say’s law, which holds that economies will bounce back automatically as wages, prices, and interest rates stagnate or fall. This notion was anathema to John Maynard Keynes. The CBO makes absurdly precise projections of events 10, 20, and 30 years out. All the while, it wears the mask of objectivity.

The CBO’s estimate that Obamacare will result in 2 million people or so leaving the workforce, it admits, is “substantially uncertain.” There’s an understatement. Just a couple of years ago, it figured the number to be much less. But it says it did a more comprehensive analysis and included a few more recent studies, mostly about cuts in Medicaid. Some studies show that when a couple of states cut funding for Medicaid, people started looking for work. Other studies show little impact, however.

A subsidy for the poor, as Obamacare is, benefits the poor. As the working poor make more money, however, the subsidy diminishes. They may leave their jobs as a result, now able to afford health care on their own.

The CBO also said, however, that Obamacare “will boost overall demand for goods and services over the next few years because the people who will benefit from the expansion of Medicaid and from access to the exchange subsidies are predominantly in lower-income households and thus are likely to spend a considerable fraction of their additional resources on goods and services.” In contrast, people who will pay the modest increase in taxes to support the subsidies “are predominantly in higher-income households and are likely to change their spending to a lesser degree.”

Just what the doctored ordered for a sick economy!

In addition, the drop in total labor compensation as people quit their jobs will be less than the drop in the number of hours worked. Fewer hours worked but not as much lost in income. Pretty good policy.

Jeff Madrick is a Senior Fellow at the Roosevelt Institute and Director of the Bernard L. Schwartz Rediscovering Government Initiative.

Cross-posted From Rediscovering Government.

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

AFP Photo/Karen Bleier

Lesson From December’s Jobs Report: Turn On The Fiscal Jets

Lesson From December’s Jobs Report: Turn On The Fiscal Jets

The economy is not yet strong enough to cope with tighter monetary policy, but fiscal policy is what’s really missing from this recovery.

The weak employment report out today reinforces the view that the Federal Reserve should not ease up on monetary policy soon. The strength of this economic recovery is not yet clear, and the Fed is the only game in town due to sequestration of government funds.

Waiting another three or four months to tighten policy and reduce quantitative easing will not change the course of America’s destiny. But moving now, as they have done ever so slightly, could easily pull the rug out from under this modest recovery.

The sharp fall in the unemployment rate to 6.7 percent was just about entirely accounted for by people dropping out of the workforce. The employment-to-population rate is roughly at its lowest level in more than 30 years. Too many people are not working in America. For all the economic weakness in Europe, they have higher participation rates than the U.S. does.

The drumbeat of optimism emanating from most economists recently will now be muted until the next set of data. The jobs numbers are the most telling indicator of economic strength. Economists turn on a dime when they are issued, but only because they can, given the computerized models that shift modestly with every piece of economic news. They should have a stronger analytical thesis than to depend on one month’s data.

The path forward is clear. We should keep in mind that the economy is not doing badly. On average, there has been moderate job growth over the last three months, just not nearly enough to justify an end to monetary stimulus now. We should wait at least a few months to make sure this recovery and expansion is truly solid.

The good news is that the disappointing employment data will reduce pressure on the Fed as Janet Yellen takes over the reins. The bad news is that it will unleash the anti-Obama forces who blame the slow economy on Dodd-Frank’s costs to the financial community, future fears of inflation, and of course the federal budget deficit. Tune in to Fox News after the employment data release and you’ll find them saying “Obama did it.”

Larry Summers offers the best advice: we have to turn on the fiscal jets. The first words out of anyone’s mouth about the economy should be that sequestration did it. Fiscal de-stimulus was huge in 2013. Government spending fell sharply. The deficit is no longer an issue, given unemployment around the current level.

Summers is being criticized by economists and commentators from across the political spectrum for claiming the nation may be in a period of secular stagnation. Summers noted that the economy was disappointing even before 2007. How could that be, ask some, if the unemployment rate got down to roughly 4.5 percent?

John Taylor of Stanford is especially vociferous about how good the economy was under George W. Bush. Of course, he worked for Bush. But even apart from that, it is hard to take his claims seriously.

Three points here. The labor participation rate under Bush never rose to the heights it reached in the second half of the 1990s. Had it done so, the unemployment rate would likely have been around 5.5 percent.

Second, wages rose very slowly. The low unemployment rate—to the extent that it fell—had a lot to do with slow-rising wages. And the wage share of GDP fell significantly, to levels well below what they were in the 1990s. The rise in consumption to support growth was based on borrowing, as we know, not strong incomes.

Third, capital investment was weak before 2007, never even close to returning to the levels of the second half of the 1990s. The right wing loves to blame lack of business confidence on low levels of capital investment today, but how do they explain the Bush era?

So, to reiterate, Summers is right. We are wading in dangerous territory. On top of all this, there has been a confusing and disturbing downturn in productivity growth for several years—starting, again, before 2007.

We have a tool to deal with this: more government spending. But we get the opposite. Obsession with the budget has led to full-fledged austerity policies in America, as well as Europe.

There are some sweet spots in the economy. I am skeptical of fracking, but it is helping the economy now. Housing is picking up.

But any increase in interest rates without serious fiscal stimulus now is outright dangerous. The inflation fearmongers are still out in force, of course. So let me repeat this: There is no appreciable inflation right now. And one last point: More growth in output could stimulate growth in productivity as well, a well-known economic relationship known as Verdoorn’s Law.

Will America do what’s necessary? Not enough of it. But at the least it should not reverse monetary policy yet. And there may be a little political room to push Washington toward spending in 2014. If so, the nation had better take advantage of it.

Jeff Madrick is a Senior Fellow at the Roosevelt Institute and Director of the Bernard L. Schwartz Rediscovering Government Initiative.

Cross-posted From Rediscovering Government.

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

AFP Photo/Brendan Smialowski