Wednesday, May 13, 2009

Re-Post Number 9: "Obama's Choice on Jobs Policy - Job Training or Job Creation?" (Oct 16, 2008)

Note: this repost, one of the last three to go, focuses on the difference between job training and job creation, and why the former is a weak policy option that doesn't begin to address serious structural problems in the American economic system.

This diary is a follow-up from yesterday's diary here on Obama's proposals on jobs policy, in which I discussed how Obama's proposals are a vast improvement on previous Democratic nominees, but show a shot-gun approach that combines a number of different approaches to doing the same thing.

Today, I'm going to be talking about one choice, the choice between providing job-training programs (with the ultimate view being to get the currently unemployed back into the private-sector workforce) and providing direct job creation programs (with the ultimate view being to create new public-sector jobs to make up for the lack of private-sector jobs).


The debate over job-training and job-creation stretches back to debates within post-WWII liberal policy circles, starting with the fight between Fiscal Keynesians and Social Keynesians in the immediate post-war years. Just to summarize an earlier diary on the difference between the two here:
  • Fiscal Keynesians believed that you could achieve Keynesian goals (such as full employment, economic growth, consumer purchasing power, increasing investment, and the like) through the use of the "fisc and the Fed" - i.e, increasing or decreasing aggregate Federal spending on existing programs and increasing or decreasing interest rates.
  • Social Keynesians believed that such measures were inadequate, that the form of government spending was crucial to its effectiveness, and that the government would especially have to take a more interventionist role in ensuring that a high enough volume investment flowed in productive directions.
I don't want to get bogged down on this, but the parallels to recent economic policy is rather striking. In regards to the form of government spending, Social Keynesians pointed out that spending on poor and working class people would produce a higher multiplier effect than spending on middle class and rich people because poor people have a higher marginal propensity to consume and, because they tended to purchase mass-produced goods in a variety of industries instead of a few luxury goods, would lead to more respendings, as the people they bought goods from went out and bought goods of their own. Ironically, this insight has completely been ignored in the last eight years of tax cutting, especially during the last stimulus package debate over income rebates vs. unemployment insurance and food stamps. In regards to both form and investment, Social Keynesians argued that government spending on public works would be better than just handing out money, because the public works would add to productive infrastructure; moreover, they argued that since the stock market and financial industry tended to focus too much money and effort in beating the market or unproductive financial instruments, that public investment was needed to keep technological innovation, productivity, transportation, etc. all running at peak efficiency. Very different from solving our economic crisis through buying toxic financial instruments.

Job Training:
But to get back on topic, this division between the two camps was instrumental in shaping post-war liberal economic policy. During the 1940's, the defeat of the Full Employment Bill was due as much to the lukewarm feelings of Fiscal Keynesians and those politicians who followed their teachings as it did to conservative opposition.

The next crucial episode was a largely invisible fight within the Kennedy Administration in 1963 between the Fiscal Keynesians of the Council of Economic Advisors, led by Alvin Hansen, and the Social Keynesians of the Labor Department, led by Secretary Willard Wirtz over which direction the proposed War on Poverty would take. In Economics, Bureaucracy, and Race, Judith Russell describes the clash vividly. Alvin Hansen and his group, all of them staunch Great Society liberals, believed that fiscal and Fed policy could produce full employment and that a combination of anti-discrimination, compensatory education, and job-training programs would allow poor African-Americans and rural whites to escape their economic ghettos, reducing poverty without the need for messy, political controversial, expensive, and inefficient government intervention in the labor market. In this view, the poverty and unemployment of poor blacks and whites stemmed from the lack of job skills and education resulting from a "culture of poverty" within the ghetto. Willard Wirtz and his supporters, who came out of a more laborite sort of liberalism, argued that structural racial discrimination and the inherent weaknesses of the private labor market required the government to directly provide jobs and make investments in depressed areas, since the private sector wouldn't yet invest in ghettos or their residents. In their view, poverty and unemployment were caused by structural failures in American capitalism, not individual failings.

Ultimately, Hansen won. The results of the War on Poverty are instructive: great strides were made, especially in elderly poverty. But the major jobs crisis of the ghettos was not addressed. Compensatory programs in education and job training were helpless in the face of overwhelming economic forces and structures. As Gorden Lafer points out in The Job Training Charade, these programs often provided few actual real skills - what are called "hard skills," like training to become a carpenter, plumber, bricklayer, or electrician (or programmer, hospital tech, solar-panel installer, etc.) - but rather focused on "soft" skills like resume writing, interview training, and "job habits." When the graduates of these programs, provided with few marketable skills, were thrown onto a job market that had virtually no jobs for ghetto residents, they failed to find any work, and were shuttled back into the program to undergo another round of "training," trying to make ends meet on skimpy cost-of-living grants.

Despite this failure, job-training has become the hegemonic jobs policy, especially in the 20 years since the rise of Reagan eliminated the last gasp of direct job creation efforts of the 1970's. Ultimately, the question of jobs became inextricably linked to the politics of trade and welfare: the question of what should be done with former steelworkers or former welfare moms became inextricably linked to the question of whether "free trade is working" or "welfare reform is working," and the knottier political question of what the relationship between the state and the market, and between the state and its citizens should be.

What Does This Mean for Obama?

Throughout debates over NAFTA or welfare reform or economic policy, Democrats since the 1980's have continued the fight over how to deal with the major economic change in post-1970s America: increasing job insecurity, flatlining wages, and the decline in good, union, blue collar jobs that high-school graduates could use to support a family. The solution promoted by New Democrats like Bill Clinton was to provide Transition Assistance (read: extra unemployment insurance for people whose jobs have left for China), and more job training, to prepare us for the job market of the new high-tech future. On the other side, a scattering of progressives, from Congressional liberals to unions to academics, argued instead for what was variously termed "infrastructure investment," "public investment," or public works. There wasn't and hasn't been a whole lot of coherence or political influence behind this counter-argument, and certainly during the Clinton years, talk of public works dropped from the agenda.

For a while, the Clinton approach seemed to work: the good times of the 1990's seemed to suggest a kind of neo-Fiscal Keynesianism, where low interest rates and balanced budgets and deficit reduction would produce economic growth, low unemployment, and public surpluses that could be used to provide for programs to compensate the economic losers, and help them move into the economic mainstream.

However, the past eight years have begun, ever so slowly, to change the dynamic. First, there was Katrina; then, the Minneapolis bridge collapse. At the same time, many major thinkers who had previously been on what could be called the neoliberal side began to shift quite dramatically, driven by concerns about rising inequality and other indicators that their belief in the rising tide lifting all boats had been misplaced: Larry Summers, Bob Rubin, Joe Stiglitz, Jeffrey Sachs, and Paul Krugman (yes, even Krugman) are all former pro-neoliberal thinkers who've seen the light over the last ten years. Especially in the wake of the financial collapse and the nationalization of the banking system, the mood on Capital Hill has swung much more in the direction of government intervention, considered more broadly.

Despite this shift, the status quo is very much uncertain, balancing between the idea that "transition assistance" and job-training is all that is needed to reverse increasing inequality and poverty and unemployment, and the idea that we have to do more.

One hopeful sign that suggests that the choice might come down on the side of jobs programs that have proven to work is the subtle, but remarkable shifts that we have seen since 2004. In 2004, all of the Democratic candidates proposed policies to "grow jobs, make jobs, build jobs, create jobs," and so on - but the ultimate policies came down to throwing money at the economy and making it stick. Such policies that actually directed themselves at workers tended to be of the job-training kind. 2008 saw an important shift, and if there is anything that Senator John Edwards can still be proud of, it's that he put the idea of "1 million public jobs" on the political agenda, and made Obama respond to that.

As we saw last time, Obama's response shows influences from many different approaches, which makes it hard to predict what would happen should he win, and propose a jobs program, what he would choose to do. Partly the confusion comes from the very broad strokes that his campaign has drawn (which is tactically shrewd and properly cautious), it's hard to tell how much money would go into the Green Jobs Corps (and whether it's a job-training program or a jobs program) or what exact form the Jobs and Growth Fund, National Infrastructure Reinvestment Bank, and "invest $150 billion" to create "Create 5 Million New Green Jobs" will take.


Very simply, I would call upon Obama, congressional Democrats, and the progressive community more broadly, to eschew job-training proposals and similar hands-off approaches. They do not work, never have worked, and stem from a fundamentally wrong-headed view that unemployment stems from shortcomings of the unemployed, and that public policy should focus on making the unemployed better workers, not on economic structure.

Jobs creation, by contrast, has a proven record of success. When FDR and Harry Hopkins announced the creation of the Civil Works Administration in 1933, they created 4.2 million jobs in 3 months. When the WPA was in effect between 1935-1942, the Roosevelt Administration knew that anywhere from 2-3.5 million jobs at least had been created, not even counting jobs created in the private sector.

Starting January 2009, the next president will inherit an economy in steep recession, with an unemployment rate of anywhere from 6.1% (our current rate) to 8% (Obama's estimate) or possibly more. Economic recovery in the private sector is something that the next president and the next Congress should push for. However, private-sector recovery (as we have seen during the Bush Administration) does not necessarily mean that you assume large-scale job growth. Public-sector job creation policy, by contrast, will provide the next administration with a backstop or floor - that no matter what happens on Wall Street, they can count on X number of jobs being created.

In a nutshell: down with job-training, up with job creation!

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