Wednesday, May 20, 2009

Re-Post Number 11: "Stimulus Is Not Enough: Job Creation Now!" (Jan 09, 2009)

Note: and that's the last of the re-posts. The context for this post was the political fight over the Obama stimulus package.

In the last few months, the U.S economy has seen one of the fastest slides into one of the most terrifying employment declines in American history - we are now losing jobs at the rate of 500,000 a month.

Given this reality, the current stimulus proposal is no longer sufficient. We must move beyond a debate that tries to balance a couple hundred billion in tax cuts with four hundred billion in public works, aid to the states, and traditional stabilizers (UI, food stamps, etc).

In the last few months, the U.S economy has seen one of the fastest slides into one of the most terrifying employment declines in American history - we are now losing jobs at the rate of 500,000 a month. Given this reality, the current stimulus proposal is no longer sufficient. We must move beyond a debate that tries to balance a couple hundred billion in tax cuts with four hundred billion in public works, aid to the states, and traditional stabilizers (UI, food stamps, etc).

What we need are jobs, and jobs now.


For about two years now, I've been diarying about public employment programs, which I'm studying for a dissertation in U.S Public Policy History. If you're interested in reading more on job creation programs, you can check out any of these diaries:

[edit: see here]

The Current Crisis:

Given the stunning rate of job loss, I believe that traditional stimulus measures will not be adequate to offset the damage being done to the economy. On the jobs front, if we create three million jobs as President-Elect Obama hopes, we may well have only bought ourselves six months of breathing room rather than a lasting improvement. On the consumption side, even if we shovel $1 trillion into the economy, if people are seeing jobs disappear at the rate that they have, their propensity to consume will decrease and their propensity to save will increase as people batten down the hatches against the bad times and save money for when the jobs go. Not to say that it won't have any effect, but it's going to be much much weaker than one would hope.

Given the seriousness of this situation, I think we need to radically re-think the stimulus package. To begin with, the tax cuts need to come out - they're not going to have nearly enough of an effect on people's spending habits if people's psychological posture is determined by an omnipresent fear of layoffs and unemployment. Next, we need to understand that the current commitment to public works is inadequate to the task. While many of the existing public works plans - from greening buildings to building high-speed rail - are quite worthy, the nature of the process of letting out contracts, vetting proposals, and getting the site operational takes too damn long, and will not generate enough jobs fast enough.

What We Need:

As I have argued before (see here), public works are not the policy tool we should be looking to, at least not in the traditional contractor model.

Instead, I believe that the Federal government needs to hire unemployed workers directly and immediately. We should begin by hiring 5.5 million workers right now, to bring the unemployment rate down from 7.2% to 3.6%, and to increase that number at any time to keep the overall unemployment rate at 4% or below if/when additional private sector jobs are lost.

Why? First, we need to dramatically reverse our current downtrend. Creating these jobs would send a dramatic signal to every consumer and producer that mass unemployment is not going to happen, that it is not necessary to cut back in the face of crisis. Second, we need a policy big enough for our economy. Given the sheer scale of the American labor market, in order to send a signal that really resonates, you need to do something at a large enough level that it actually changes the economic reality - cutting unemployment in half is exactly the right kind of signal. Third, every month we wait to create jobs is less income going into the economy and more people falling into poverty - in order to start spending fast enough to get ahead of the deflationary effects of this recession, we need to create jobs faster.


Luckily, we do have precedent for how to do this, in the Civil Works Administration. In the fall of 1933, with unemployment still hovering in the 20% range, Harry Hopkins (the head of FDR's Federal Emergency Relief Administration) went to President Roosevelt with a plan to create 4 million jobs to reduce unemployment and keep people alive during the normal seasonal downturn in unemployment in the winter. To his surprise, Roosevelt agreed, and the CWA was born in October 1933, with a grant of $400 million dollars "borrowed" from FDR's public works program.

In three months, the CWA had created 4.26 million jobs. At a time when the most advanced administrative technology was the carbon copy and the rotary phone, all 4.26 million workers were hired and put to work that quickly. Surely, today we can do better.

The Cost:

Assuming a base salary of $24k/year and a non-salary overhead of 30% (a rather generous assumption, given that New Deal era programs managed to limit non-salary costs to 20%), it should cost roughly $31 billion to put one million people to work for a year. Five and a half million people makes $170.5 billion dollars - well within the current framework of President Elect Obama's $750 billion plus package.

In the end, this is not a question of whether we can find $170 billion to spend; the sheer size of the bailouts and the proposed stimulus package shows that the American government's fiscal powers are much greater than we've been led to believe on social welfare issues. It's more a question of how we spend money, and the ideology contained therein.

Republicans want to give tax breaks because they don't believe in government, and they want to benefit the rich who they believe are best suited to spend the money. Congressional Democrats want to spend the money traditionally, because they're used to spending on traditional areas and constituents (not that their proposed spendings are a bad idea, far from it), and because it's been 70 years since we've done anything like this. Creating millions of jobs directly is a radical departure from standard practice, and Democrats may well be nervous about doing something so drastic.

However, we simply cannot afford to wait.

Please read this, promote this if you can, pass the word on. There is a way out of this crisis, but we just have to remember how we did it last time.


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