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Monday, December 09, 2019 {{ new Date().getDay() }}

The Progressive Budget Reminds Us That Government Can Create Jobs

Unemployment is still a major problem in the U.S., and the best solutions involve a more aggressive government response.

The Congressional Progressive Caucus budget, released last Wednesday, is forecast to create more than 8 million jobs by 2017 – a claim that is bound to stir up an argument about the government’s role in job creation. It’s not a new argument – progressives and conservatives have been having it explicitly since 2008 and more implicitly for years before that – but it is worth revisiting, because progressives are losing, and it’s a battle we cannot afford to surrender.

First, some might wonder if we even need to worry about jobs anymore. Unemployment is falling, GDP has expanded, and the stock market has rallied. The political debate has shifted away from a focus on growth and toward the consequences of our failure to stimulate growth: rising inequality and poverty. But in the face of federal paralysis, the labor participation rate remains down, wages remain stagnant, and productivity continues to decline. Now more than ever, the government must restore the dream of dignified work to all Americans.

Even if we agree that there is a problem, the skeptics will argue that the government is too inefficient and bureaucratic to effectively create middle-class jobs and support economic growth. But the 2009 stimulus package provides a prime example of effective government intervention. Economists of all stripes, including Alan Blinder, former vice chair of the Federal Reserve, and Mark Zandi, Chief Economist at Moody’s and former economic advisor to John McCain, agree that the ARRA succeeded in creating the 2-3 million jobs it was designed to create. In their analysis, Zandi and Blinder found that without the stimulus, the economy would have contracted 6 percent and unemployment would have hit 11.6 percent. Instead, at its worst, GDP declined 2 percent and unemployment hit 10 percent.

The problem was that the ARRA could not protect the U.S. from a shock that cost the economy 12 million jobs, because the $825 billion package was too small and tapered too soon to plug the $1.2 trillion drop in private demand.

Acknowledging the success of the stimulus, some conservative analysts argue the challenges we now must tackle are not remnants of the recession, which would be amenable to government intervention, but rather are the product of insurmountable structural trends – automation, globalization, financialization. But even if that is true, it’s not an excuse for the U.S. government to abdicate its role as a driver of economic growth. Indeed, a changing economic landscape requires an adaptive government to ease the transition. Increased automation requires reformed and renewed investment in human capital to allow American workers to dominate the information age. Globalized supply chains demand new labor laws to recognize the rise of sub-contracted work. A growing financial sector requires an enhanced regulatory regime to ensure capital is allocated toward productive uses.

Then we have the deficit scolds, who are likely to claim that the CPC’s proposals are fiscally unfeasible. While hysteria about the government debt has prevented lawmakers from passing an additional large-scale stimulus package, new U.S. debt projections, and the clear failure of Europe’s austerity measures, prove these threats to be overblown. The danger associated with deficits, rising interest rates, and runaway inflation are far from a reality in the current climate of below-target inflation and non-existent interest rates.

In fact, the U.S. budget deficit fell to 4 percent of GDP in 2013, according to the CBO, and was projected to decline to 3 percent, the average for the last 40 years, in 2014. At about 73 percent of GDP, the federal debt remains high; however, the most effective way to reduce the debt to GDP ratio is to grow GDP, not shrink debt. National debt topped 118 percent of GDP immediately following World War II, and then the debt doubled over the next 30 years. But because the economy grew rapidly, debt fell to a healthy 30 percent of GDP by 1981. Europe’s experience with austerity reveals the danger of valuing debt reduction above growth. As spending reductions slowed rising debt, they also cut GDP and increased the relative cost of debt payments.

The CPC’s budget will create new jobs, improve job quality, and invest in future job growth. The ideas are not new; many, like investment in infrastructure and workforce training, have been proposed in bills currently sitting in Congress. Nor are they necessarily bold; for example, funding R&D and using fiscal stimulus were considered common-sense government policies in previous generations. The problem up to this point has not been a lack of good ideas. It’s lack of political will. Let’s reopen this debate and use the vast number of policy tools we know to be effective.

Nell Abernathy is the Program Manager for the Roosevelt Institute’s 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.

Crazy George via Flickr

Conservatives And Progressives Agree: Congress Should Not Cut Unemployment Benefits

Extremists who think government support for the unemployed is holding the economy back don’t have the facts on their side.

It’s a rare day indeed when Next New Deal bloggers support economic arguments with links to the Weekly Standard, the American Enterprise Institute, and Goldman Sachs. But at this moment, in this economy, we are all singing the same tune about the absolute necessity of extending unemployment insurance and providing additional support to the long-term unemployed. So, consider our current alignment a sign of extraordinary times.

Extraordinary because six years after the recession, there are still at least 4.1 million long-term unemployed Americans who have been looking for a job for more than six months and have yet to find work. Extraordinary because despite agreement from both progressive and conservative economists on the need for government action, the congressional flank led by Paul Ryan and Rand Paul is so far outside the mainstream that they are arguing to cut benefits for the long-term unemployed. Extraordinary because the 113th Congress is so dysfunctional that these extremists just might succeed in their goal.

Protecting unemployment insurance is a “disservice” to the unemployed, Rand Paul told the morning shows Sunday. The clear logic being that those folks looking for work for the last six months have been all-too-coddled by their $300-a-week government check, when what they need is some real motivation to pound the pavement even harder.

Unfortunately for Mr. Paul and his friends, there are a few flaws in this latest version of the-up-by-your-bootstraps logic. But, don’t take our word for it. For a full outline of the arguments in support of extending unemployment insurance, we turn to the conservative intelligentsia and financial establishment.

Who are the long-term unemployed? Lazy hangers-on?

According to a report from the Urban Institute, in 2012, two-thirds of the long-term unemployed were ages 26-55, one-third had children, one-half had at least some college, and 1 in 10 were college graduates.

Michael Strain in the Weekly Standard:

A large share of the long-term unemployed are people with relatively high earnings potential and personal responsibilities that extend beyond themselves. It is hard to imagine an educated worker in her prime working years with a kid at home having allowed a $300-a-week check to stand between her and a strenuous job search for over half a year.

Well, then why aren’t they getting jobs?

A growing body of empirical evidence indicates that the long-term unemployed experience “scarring” simply for being unemployed.

Congressional Testimony of American Enterprise Institute fellow Kevin Hassett:

There is an evident shift in the curve [the Beveridge curve which serves as a measure of how quickly the labor market matches workers with job openings] for workers who have been unemployed for 27 weeks or more, unemployed workers of shorter durations have experienced no outward shift in the Beveridge curve. They conclude that being unemployed for a longer amount of time has an effect on the chances that a worker will become employed, suggesting that being long-term unemployed is in itself a cause of the persistence in unemployment.

While I feel bad for them, it’s not my problem. Isn’t unemployment insurance just a big waste of my taxpayer dollars?

With a GDP multiplier of 1.6, unemployment insurance is one of the most efficient fiscal stimulus tools. Every dollar spent on unemployment insurance contributes $1.80 to GDP. In contrast, a lump-sum tax rebate or a dividend and capital gain tax cut would provide GDP multipliers of only 1.2 or 0.4, respectively.

Congressional testimony of Mark Zandi of Moody’s Analytics:

Emergency UI provides an especially large economic boost, as financially stressed unemployed workers spend any benefits they receive quickly. With few other resources, UI benefits are spent and not saved.

Moreover, a recent report from the Fed indicates that the declining skills of the long-term unemployed have degraded our potential for GDP growth in the future.

Goldman Sachs Global Economics, Commodities and Strategy Research analysis of Fed report:

They estimate that real potential GDP growth has only averaged 1.3 percent since 2007, the output gap is currently about 3 percent of GDP, and the structural unemployment rate had risen to 5.75 percent by 2012 (although it is now again on a slight downward trend). They then use a modified version of FRB/US with an added role for ‘hysteresis; in labor markets–that is, a gradual transformation of cyclical unemployment into structural unemployment and/or labor force withdrawal –to analyze the sources of this deterioration, using a simulation in which the model economy is hit by a major financial crisis that is calibrated to match the size of the 2007-2009 episode. In a nutshell, they find that the post-crisis period ‘features a noticeable deterioration in the economy’s productive capacity’ and that about 80 percent of the deterioration ‘…represents an endogenous response to the persistently weak state of aggregate demand.’

Well what are we supposed to do – just pay them forever not to work?

Well, we can discuss a minimum income later. For now, let’s invest in programs to get workers back in the workforce. Here are a few steps we can take:

1. The government can fund direct employment for the long-term unemployed.

AEI’s Kevin Hassett testifying before Congress:

The stigma of long-term unemployment may be ameliorated by a short-run jobs program that recruits the long-term unemployed to assist with normal functions of government. This may allow individuals to look for a new job while employed, a change that may have a large impact on placement.

2. The government can increase transportation infrastructure to ensure all workers can get to work and create jobs.

Michael Strain in the Weekly Standard:

One way to advance these goals would be to improve transportation networks within cities and their outlying areas in order to shorten commute times from low-income neighborhoods to employment centers…. In its cheapest incarnation, this would involve extra buses that run nonstop from low-income neighborhoods to employment centers, both in city centers and in suburbs. And of course, more money for better roads, bridges, and tunnels would shorten commute times for everyone, including the working poor.

3. The government can expand work-sharing programs.

Michael Strain in the Weekly Standard:

To help make sure that we aren’t adding any new workers to the rolls of the long-term unemployed, states without worksharing UI programs — about half of them at the moment — should start them. Under worksharing, a worker who has his hours reduced by his employer in response to a temporary lull in demand can receive a prorated UI benefit. This makes it easier for firms to reduce employees’ hours by, say, 20 percent, rather than laying off 20 percent of their workforce. Government shouldn’t tilt the scales towards layoffs by prohibiting workers who have their hours reduced from receiving prorated UI benefits.

What now?

I’ve just listed a few of the many government solutions to our current economic woes on which progressives and conservatives agree. Extending unemployment insurance is not a partisan issue. The government providing a helping hand to those who most need it has not, historically, been a partisan issue. This is not about left and right. It is about pragmatic versus extremist.

For the sake of current GDP, future GDP growth, and the long-term unemployed, congressional Republicans cannot let the extremists win this time.

Nell Abernathy is the Program Manager for the Roosevelt Institute’s 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/Mladen Antonov

Why New York Is Home To So Many Of The Working Poor, In Graphs

The Bernard L. Schwartz Rediscovering Government Initiative is trying to understand how New York got so unequal. And we’re looking for solutions.

So what is behind the big shift toward income inequality in New York? Income trends in the city represent an amplified version of our national problems: low-wage jobs without benefits are replacing middle-wage jobs that could support families. Nationwide, middle-wage jobs constituted 60 percent of the jobs lost during the Great Recession and only 22 percent of those regained during recovery, according to analysis from Roosevelt Institute’s Annette Bernhardt at NELP. Meanwhile, low-wage jobs made up only 21 percent of recession job losses and 58 percent of jobs gained since.

The national trend started well before the Great Recession.

And in New York, it’s been the same, but worse. A 2012 report from the Federal Reserve found that middle-income jobs comprised 67 percent of employment in downstate New York in the 1980s, but by 2010, that number fell to 55.8 percent.

Top that off with the fact that for the last decade, wages have risen for the top 5 percent and stagnated or fallen for middle- and low-income workers, and you begin to see the currents driving our inequality crisis.

Why is this happening? Technology? Wall StreetPolicy? Education?

We’ll explore those questions and potential solutions at our upcoming panel, “Inequality in New York: The Next Mayor’s Challenge.”

Nell Abernathy is the Program Manager for the Roosevelt Institute’s 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.