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HOW MODERN MONEY WORKS — Economist Alan Nasser presents a slashing indictment of the vicious nature of finance capitalism; The Bio-Social Facts of American Capitalism: David Price excavates the racist anthropology of Earnest Hooten and his government allies; Is Zero-Tolerance Policing Worth More Chokehold Deaths? Martha Rosenberg and Robert Wilbur assay the deadly legacy of the Broken Windows theory of criminology; Gaming the White Man’s Money: Louis Proyect offers a short history of tribal casinos; Death by Incarceration: Troy Thomas reports from inside prison on the cruelty of life without parole sentences. Plus: Jeffrey St. Clair on how the murder of Michael Brown got lost in the media coverage; JoAnn Wypijewski on class warfare from Martinsburg to Ferguson; Mike Whitney on the coming stock market crash; Chris Floyd on DC’s Insane Clown Posse; Lee Ballinger on the warped nostalgia for the Alamo; and Nathaniel St. Clair on “Boyhood.”
Toward Full Employment

Public Sector Jobs Are Real Jobs

by MARSHALL AUERBACK

In 1976 at a time when economists thought more about unemployment, the US economist Charles C. Killingsworth wrote a paper entitled “Should full employment be a major national goal”. He was a long-time advocate of public employment programs and understood how deficient the economics profession was when it came to caring about people.

I thought about this paper recently upon reading an article in the Daily Beast by the always insightful Michael Tomasky, The Real Obama Needs to Fight Five GOP Myths About the Imaginary Obama .  Tomasky discusses the myths that Obama needs to dispel during his party’s upcoming convention.  One in particular caught my attention:  the idea that the President needed to confront the myth that he allegedly believes that jobs comes from government.

What’s wrong about that? In one sense, it is a myth:  to the extent that jobs are an outgrowth of sales, which are a function of aggregate demand, it is wrong to say that the public sector per se creates jobs.  But demand (and, by extension, sales) is more robust when employment rates are higher and, in that sense, it matters not to the restaurant owner, or the engineering firm, whether the source of that demand comes from a private or public sector job.  The teacher’s cash is just as good at the cash register as the accountant’s.

So why does the president even need to disparage the notion that good jobs and vocations cannot come from public employment in order to prove to American voters that he’s not some kind of radical Marxist?

The USA used to value the idea of public service.  Remember, “Ask not what your country can do for you – ask what you can do for your country”?  That was the essence of much of the idealism underlying the Kennedy era.  Peace Corps, not leveraged buy-outs; public works, instead of credit default swaps. This was before the beginning of the neo-liberal onslaught that evolved in the late 1970s into the vapid and rabid belief that self-regulating markets would deliver the highest wealth to all of us. The privatisation and deregulation accompanied that mantra, much of which is the source of our present misery and income inequality, as public goods have rapidly become converted into private rents.

Over the past 30 years, any notion that the government might use fiscal policy for direct job creation has been attacked with arguments that it would cause spiraling inflation and, eventually hyperinflation, or that interest rates would soar as bond markets lost faith in government debt issues.  This propaganda has become so extreme that it has now got to the point where even a sympathetic liberal columnist like Michael Tomasky suggests that it is good electoral strategy for Obama to trumpet the fact that public sector hiring has shrunk by 3% since the start of his Administration! This at a time when overall unemployment is still above 8% and combined with underemployment takes us to something closer to 15%.

By contrast, Charles Killingsworth unapologetically asserted that the US definitely should make full employment a major national policy. He said that:

“[T]oo many of us have been intimidated for too long by the many prestigious economists and others who have been telling us that manpower programs don’t work; that the only way to reduce unemployment is to cut taxes; and that if you cut taxes enough to approach full employment, you will have an inflation and destroy the country.”

As Killingsworth argued, the economics establishment was wrong about this diagnosis, as it has been wrong so many times before in the last several years.  But given the current love affair with “fiscal sustainability”, and the threatened arrival of the “fiscal cliff”, it is easy to envisage how the country could slip further into a Third World type of fortress society, where the wealthy live in high class ghettoes manned by private security forces, and drive around in bullet-proof limousines to protect their offspring from being kidnapped from an increasingly desperate, bitter, dangerous underclass outside.  Certainly, we’re not that far away from the horrifying images evoked in H.G. Wells’s late 19th century classic, “The Time Machine”, whose protagonist ventures forward in time to a place where we have the brutish Morlocks, who live in darkness underground and surface only at night, whilst the leisured classes have become the Eloi, an ostensibly elegant people, who reside in communitarian comfort in the light above, but live off the labor of the downtrodden Moorlocks on whom they depend for their prosperity.

That’s where we could be headed if we fail to make full employment a major goal of this great country and start moving in the direction of a stronger, more secure country and a better quality of life for all of us.

Killingsworth was a strong advocate of public employment (PSE) programs to relieve unemployment and provide a better life for everyone. In his essay he said that “a ten billion dollar public service employment program … can increase gross national product bu at least as much as a ten billion dollar tax cut. That is elementary macro-economics.”

In fact, it would increase GDP by considerably more because some of the tax cut will be lost to saving and it is highly likely the marginal propensity to consume of those given wages in the program would be higher than the national average.

He recognized that the unemployed do not “benefit direct from tax cuts because they don’t pay income taxes” and that a Public Service Employment program could be concentrated on the most disadvantaged. He believed that PSE programs were much easier to scale down, and could be terminated much more readily than a tax cut could be reversed.  As last year’s debates over the Bush tax cut expirations indicated, Killingsworth proved very prescient.

Killingsworth wasn’t naïve.  Even in the mid-1970s, he was aware of the stereotyping of public sector programs that formed the basis of the conservative criticism. He noted that:

“I do want to say that I’m aware that a great many people have a kind of knee-jerk adverse reaction to the idea of creating more government jobs. I think that a mental image appears of a clear sitting down at a desk between coffee breaks, moving pieces of paper from the in-box to the out-box, and leaving a half hour before quitting time. Now I don’t care much for that kind of job either. If that’s public service employment, I not really enthusiastic about it. But I think that image is the product of a poverty of imagination.”

He then described the way, as an example, the way the public education system had been reduced by bean counters intent on budget savings. The type of jobs eliminated included teacher aides and paraprofessionals, non-core jobs which add to the efficiency of the core jobs (the teachers).

He noted that “the first casualties of budget cutting across the country in public education have been precisely” these type of jobs. He noted that “they have disappeared by the tens or hundreds of thousands all across the country …”

He closed that section of his talk by saying that public sector work programs are not the “panacea” but part of an overall solution to restore full employment.  That they could be socially useful jobs, as Keynes himself earlier recognized.  During the Great Depression, Keynes famously remarked that if the government could find nothing better to do, it could hire one group of workers to dig holes to bury money, and then hire another group to excavate the money that would be used to pay their wages. This might seem to be a rather silly policy proposal, and Keynes meant it to be just that.

Unfortunately, Keynes’s comments here have been used as a weapon by conservatives with which to caricature anybody advocating using government expenditures to promote employment.  Try telling that to a police officer the next time your home is robbed.

In reality what Keynes was saying is that first, given the low levels of effective demand and the high levels of unemployment in the 1930s, virtually any paid work would be an improvement—it would provide jobs and incomes to the unemployed, raising aggregate demand and stimulating the economy. Thus, even something as seemingly useless as digging holes would be beneficial. Second, he was using such a ridiculous example to spur policy-makers to come up with more useful projects—surely even the dumbest politicians or economists could come up with something better than digging holes!

The point is that no capitalist society has ever managed to operate at anything approaching true, full, employment on a consistent basis. Further, the burden of joblessness is borne unequally, always concentrated among groups that already face other disadvantages: racial and ethnic minorities, immigrants, younger and older individuals, women, people with disabilities, and those with lower educational attainment. Since markets do not operate to achieve full employment, and because markets tend to leave behind the least advantaged members of society, government should and must play a role in providing jobs to achieve social justice.  There is nothing to be ashamed about in acknowledging this fact.  In reality, it is a goal that we should embrace with the same kind of passion Kennedy evoked when he promised a man on the Moon by the end of the 1960s. The real myth, of course, is that President Obama is afraid to make this case, a tragic omen if we are to avoid the dystopian future feared by visionaries such as John Maynard Keynes and Charles Killingsworth.

MARSHALL AUERBACK is a market analyst and commentator. He is a brainstruster for the Franklin and Eleanor Roosevelt Intitute. He can be reached at MAuer1959@aol.com