Monday, March 30, 2009

Re-Post Number 3: "A WPA in 2008: 1 Million? Or 4 Million?" (Aug 09, 2007)

Note: In this re-post, which follows directly from the second, I tie the issue of direct job creation policy to a larger political argument I have with certain members of the Democratic Party about negotiating strategy. In short, I think that one of the problems with the Democratic Party at present is that, in order to seem "reasonable" and "moderate," we propose legislation that gets us 50% of what we want, and then we end up with 25% or nothing. I believe that we need to start with 200% of what we want to end up with 100%.

In my last diary, I laid out a brief overview of what Senator Edwards' job plan would cost, what it would produce, and what it would look like. In this installment, I'm going to look at some hypothetical plans for job programs, and make the case that progressives, including but not limited to Sen. Edwards, should push for a larger number of "stepping stone" jobs.

At the moment, Sen. Edwards' plan calls for the creation of one million public employment jobs. This is, of itself, a perfectly acceptable number, given the levels of cost, production, economic effect, and so forth that it would have. However, I'd like to make the case that progressives should consider increasing that number, both for policy reasons and political reasons.

First off, the policy reasons. One of the ways that public employment works in terms of producing economic results is through multiplier effects - in terms of wages, when the newly hired workers spend their wages, it tends to prompt businesses to take the extra receipts and use the money to expand their businesses with new machines/workplaces/workers and pay their workers more (theoretically); in terms of employment, when you pull newly-hired people out of the ranks of the unemployed, it decreases labor supply, which tends to push wages upward. However, in order to affect something as large as the American economy, size does matter. The larger a program, the more of an effect it will have, and there is a certain threshold below which it won't really have an effect.

So, a one million-strong would have the effect of decreasing unemployment from 6.8 million people (4.5%) to 5.8 million people (3.8%). This is historically low, comparable to the height of the economic boom in 2000. However, it's questionable whether this would have enough of an impact on wages, which have seen almost flat growth in recent years despite relatively low unemployment. It we increased the size of the public employment program to, say, three million jobs, we'd get a drop in unemployment to 3.8 million (2.5%) which is comparable to the height of the post-WWII boom, and is much more likely to produce positive wage growth.

Moreover, the effects on poverty would be much greater. As I argued in the last installment, a one million-strong jobs program could bring 2.59-3.14 million people out of poverty, which reduce poverty by 7.2-8.7%, bringing the total U.S poverty rate down to 11.1-10.9%, which be the lowest since 1972. A three million-strong program could bring 7.7-9.4 million people out of poverty, which would reduce poverty by about 20-26%, bringing the total U.S poverty rate down to 9.7%-9.2%, which would be the lowest rate ever recorded in American history. To give some transnational perspective, reducing the poverty rate to 11.1-10.9% would bring our poverty rate down to only a little more than the Netherlands; reducing the poverty rate to 9.7%-9.2% would bring our poverty rate down to somewhat less than Ireland's. These numbers do not include the effects of expanding EITC, establishing universal health care, and other anti-poverty measures.

The economic effects of a larger public employment program would be considerable. In addition to the halving of the unemployment rate, this reduction’s effect on the overall economy, and the addition of some $60 billion a year in new wages to consumption, the production of goods and services would be considerably greater. A three-million-strong public employment program would cost approximately $80 billion a year, and produce approximately $141 billion a year, for a net profit of $61 billion a year (40%). Thus, public employment, on its own, would increase economic growth by 1.3% a year. This point is worth emphasizing: the American government, by intervening directly in the economy, would increase economic growth rates by 1.3%.

I’ve given you the numbers, but let me explain what this means in terms of ideas: for the last thirty years, Democrats have often been accused of not having an ideology or a set of principles they stand for. I would argue that rather Democrats had been made to believe that the principles they stood for didn't work as policies and were politically dangerous, but that's a topic for another diary. The important thing is that many Democrats internalized two major parts of the neoconservative/neoliberal message: that the public sector is inherently inefficient and can't offer solutions (only the private sector and the free market can), and that the government is essentially incapable of creating economic change. We see these beliefs spread wide throughout the world of politics, academia, and journalism - just look at the articles that say that "presidents are blamed for the economy, but do little to affect it."

What large-scale public employment would do would show Democrats, and hopefully voters and journalists as well, that the public sector can in fact provide solutions to major problems facing Americans, and that economic policy can in fact dramatically reshape the American economy. Moreover, it's the kind of policy that ties itself right into our ideas and ideology in a simple and clear fashion: we can believe that the government works, so Democrats can go out and argue that we are the party that believes in using the government to help ordinary Americans (as opposed to the Republicans who believe in billions for the rich, but not a penny for ordinary Americans), and make the argument that Democratic economic policy can provide jobs, economic opportunity, and rising wages - and that Republican policies can't.

Public employment would be our version of cutting taxes: Republicans believe in less government, and that provides a straight path to a policy of cutting taxes, which becomes the public conception of the Republican agenda (Republicans want to cut taxes, cut spending, fight wars). For us, it would be Democrats believe in active government, so that leads to a policy of acting to provide jobs, which becomes the public conception of our agenda (Democrats want to create jobs, provide free health care, establish peace). All of the sudden, everyone (including Democrats) know what Democrats stand for.

Second, in terms of politics, one of the problems that Democrats have had in recent years is that we have tended to propose our programs at 100% of what we want to achieve, or in an effort to appear reasonable or moderate, we lower our initial offer to something closer to 50-75% of what we want to achieve, and then in the normal legislative bargaining process, we get knocked down even further. Republicans have traditionally not done this - instead, they've started at 200% of what they want or think they can achieve, and then Democrats negotiate them down to something closer to 100%, and then we congratulate ourselves for forcing them to moderate their demands.

The first Bush tax cut was a perfect example of this - the Republicans opened with an offer of $1.6 trillion dollars, which was the biggest tax cut ever, and Daschle, et al. bargained them down to $1.3 trillion and congratulated themselves for pushing them down by $300 billion when really the Bush administration had got the bulk of what they wanted.

So even if progressives only want 1 million public employment jobs, they should ask for 3, so that when they get bargained down, the end result is big enough to have the kind of impact on American poverty rates and the American economy that they hope to achieve. In general, this should also be our policy on all legislation, from health care to taxes to environmental policy - come in at 200% to get 100%.

To offer a historical parallel: one of the worst policy mistakes made by a progressive happened in 1937, when FDR decided to show that the New Deal "had worked" and was no longer needed, and so balanced the budget by drastically cutting (more or less stopping) all of the spending programs - the WPA being the most prominent. The private sector hadn't actually recovered to the point where it could do without the government pumping money into the economy, and the economy went into a recession. Roosevelt realized his mistake, and put together a budget that restored the cuts, and more or less got the economy back to where it had been in 1937 (with economic production recovered, and employment partially recovered) by 1939-40. In the mean time, FDR had lost the major pillar of his political strength - his claim to fame that his policies were actually aiding recovery. As a result, FDR lost all opportunity to push for things like the Hospital Insurance Act of 1938 (which would have provided contributory coverage for hospital visits for American workers). (And yes, the court-packing scheme did also hurt his political position; the recession, however, made a setback a catastrophe)

The morale: appearing "reasonable" isn't worth it, being victorious is.

In my next diary, I'll be discussing the difference between public employment and public works, and the importance this has for Democratic economic and social welfare policy.

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