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What the Country Needs Is a New New Deal
Posted on Sep 8, 2011
By L. Randall Wray and Stephanie Kelton
On Thursday night Barack Obama will deliver his highly anticipated jobs speech. At this point, only those closest to the president know exactly how he intends to help spur the economy and create jobs, but reports suggest that he is mulling a $300 billion jobs package that includes more of the same—a one-year extension of the payroll tax cut, a continuation of unemployment benefits, some additional spending on infrastructure and tax incentives to encourage businesses to hire and invest in new capital. Too little of what will work and too much of what won’t for an economy that’s teetering on the brink of a double-dip recession and a president who is running out of time to deliver jobs.
There’s little doubt that extending unemployment benefits will help those who are struggling to find work. But continuing the payments we’re already making doesn’t add a single dollar of new demand to the economy. Nor does extending the payroll tax cut, which simply allows workers to keep the extra 2 percent they’ve already been getting. There will be no boost in consumer spending from these measures, although they account for more than half of the $300 billion plan the president is said to be considering. For the same price tag, the president could do something truly different—he could eliminate unemployment altogether.
The job market is much worse than the official numbers suggest. Officially, we’ve got 14 million unemployed Americans looking for jobs—about four job seekers for every job vacancy. But those 14 million Americans are also competing with 8.8 million part-time workers who are hoping to land a full-time job. Since the recession began, employers have cut so many hours from the workweek that it is equivalent to the loss of a million more jobs. Add to that the roughly 2.6 million people who gave up looking for a job, and you’ve got about 25 million people needing more work and an economy that is creating no new jobs.
Whatever the president promises, it is certain to be too little, too late. Indeed, as Eric Tymoigne has shown, by some measures job performance since the start of the “recovery” has been even worse than during the Great Depression. At the rate we’re going, it will take nine years to return to the pre-recession employment level; by contrast, in the 1930s the jobs lost in the aftermath of the Great Crash had been fully restored within seven years. The difference was the New Deal, which created jobs for 13 million Americans. President Obama has never displayed any Rooseveltian sense of purpose and he will not propose any comprehensive job creation programs like the New Deal’s WPA and the CCC.
The problem is that the president believes we can cure our jobless problem by providing the proper incentives to the business community. And here he is committing one of the few big policy blunders from Lyndon Johnson’s War on Poverty. Like Johnson, who focused on retraining the unemployed for jobs that did not exist, Obama has focused on incentivizing the businesses community to hire workers to produce for customers that do not exist. Time and again, Obama has shown that he will only tinker around the edges, relying on the same tired supply-side initiatives that will not work: more incentives to build business confidence, subsidies to reduce labor costs and to promote exports, and maybe even tax cuts to please Republicans. He told a Labor Day crowd in Detroit that he wants to match the more than 1 million construction workers with an infrastructure-related rebuilding program to improve the nation’s roads and bridges. That is an improvement over his efforts to date, but it falls far short of the 20-plus million jobs we need.
For more than two years, we’ve listened to policy wonks weighing in on the supposed recovery, reading great importance into every tiny click of the unemployment rate, fluctuation of retail sales data, rise or fall of the Dow, and—especially—the latest measure of business confidence and expectations. Economists and policymakers alike appear to believe that if we can only improve the outlook of our entrepreneurs, they will suddenly begin hiring. All the nation needs is a bit of Prozac slipped into the martinis of the captains of industry to turn this ship around. And the Republicans warn of the depressing effects of Obamacare, Dodd-Frank regulations and EPA restrictions that damage the sentiments on Wall Street.
The truth is simple and contrary to these views. Business will not hire more workers until it has more sales. Consumers will not spend more until they’ve got more jobs. A private-sector recovery requires 300,000 new jobs every month. But the private sector doesn’t need 300,000 new workers per month to meet prospective sales.
The new jobs can only come from the federal government—the only economic entity that can afford to hire. Obama’s 1 million infrastructure jobs is a nice down payment, but it is only three month’s worth. New workers will create the sales that firms need to justify new hiring. Still, we must think bigger if we are to create 20 million jobs.
In his last State of the Union address, President Obama eloquently summed up the longer-term challenges we face. In many ways, they are similar to those that President Franklin D. Roosevelt’s America dealt with: a nation ill-prepared for the century in which it found itself, a nation that was “ill-fed, ill-clothed, ill-housed, and insecure.” Roosevelt’s was a nation with 19th century transportation, education and health care. The New Deal, World War II and President Johnson’s extremely successful Great Society programs transformed America. But America has fallen into disrepair, and again finds itself unprepared for the new century. A new New Deal is needed, with a comprehensive jobs program to again transform America.
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