Three Paths to Full Employment

by

The jobs numbers released by the Labor Department last week were good news. The economy generated 288,000 jobs. This was the fifth consecutive month that job growth exceeded 200,000, the first time that has happened in since before the recession. While this is better news than we have seen for a while, the economy still has a long way to go before the labor market gets back to its pre-recession level. The economy needs almost 7 million jobs to make up for the jobs lost in the downtown and the growth in the labor market in the last six and half years. To keep pace with underlying population growth we need roughly 90,000 jobs a month. Even if the economy were to create jobs at the 270,000 rate of the last three months, which no expects, we would not get back to full employment until the middle of 2017. At a more realistic but still optimistic pace of 200,000 jobs a month, we wouldn’t get back to full employment until late 2019. The prospect of waiting another five years to reach full employment is not acceptable. It means that millions of people are being needlessly denied the opportunity to earn a living. Also, since most workers are not able to see wage gains in a weak labor market, continued high unemployment means that most of the gains from economic growth will go to those at the top. Telling the public that the situation is better than the worst of the downturn is not an adequate response. The absurdity is that we know how to get back to full employment. The basic problem is that there is inadequate demand in the economy. The housing bubble had been driving the economy before the recession, leading to huge amounts of construction and a consumption boom based on bubble generated housing wealth. When the bubble burst there was nothing to replace this lost demand. There are three ways to deal with this shortfall in demand. The first is the simplest and most obvious: get the government to spend more money. That one doesn’t fly well with the balanced budget cult types who get scared by big numbers. But those grounded in reality know that in a badly depressed economy the government can boost output and employment by spending more money. This was shown by FDR’s New Deal programs which had the economy growing at more than a 10 percent annual rate. The massive spending associated with World War II made the case even more dramatically. Those looking for more recent examples might focus on Japan. It has a debt burden almost three times as large relative to its economy as ours. Yet it adopted an aggressive stimulus program that pushed its unemployment rate below 4.0 percent and created the equivalent of more than 4 million jobs in a bit more than a year. While there are many areas where government spending can usefully be directed, an obvious target for near-term stimulus is the reduction of greenhouse gas emissions. There is no excuse not to be paying workers to retrofit buildings, to install solar panels, and to construct windmills to generate energy. We can also pay for free bus service and the construction of special bus lanes to encourage people to use mass transit rather than drive. But if the balance budget cultists won’t let us increase demand through more government spending we also have the route of trade. One of the main reasons who have inadequate demand in the economy is the trade deficit. We spend roughly $500 billion (@3 percent of GDP) a year more on imports than foreigners spend on our goods and services. This is money creating demand in other countries, not the United States. If we had balanced trade, we would get almost all of the way back to full employment. There is a simple way to reduce the trade deficit, reduce the value of the dollar against foreign currencies. This makes our exports cheaper to other countries and makes imports more expensive relative to domestically produced goods. Theevidence on this point is rock solid; when the dollar rises in value the trade deficit goes up, when the dollar falls the trade deficit gets smaller. We also know how to reduce the value of the dollar. There are many routes to a lower dollar, but the most obvious is to negotiate a reduction with our major trading partners. This was done successfully in the mid-1980s under President Reagan; it can be done again today. It’s worth mentioning here that trade deals like the Trans-Pacific Partnership have nothing to do with the trade deficit and everyone knows this. Finally, if we can’t increase demand we can reduce supply. The way to do this is by encouraging firms to reduce work hours as an alternative to laying people off. Germany has successfully pursued this work-sharing path to bring its unemployment rate down to 5.1 percent even though its growth has been no better than ours. The great aspect of this policy is that it can be done at the state level. Most states now have short work programs as part of their unemployment insurance system. These should be promoted. The federal government even picks up the tab at least through the rest of this year. Other policies that can be pushed at the state and even local level include mandated family leave, sick days, and even vacation days. People in the United States work far more on average than workers in other wealthy countries; bringing our work habits more in line is both a way to create more jobs and create better lives for working people. The disaster that hit our economy when the housing bubble collapsed in 2007-2008 was entirely predictable and preventable. Tens of millions of people have seen their lives uprooted from this preventable tragedy. There is no excuse not to do everything we to bring this needless suffering to an end. Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. This column originally ran on Al Jazeera.  

Like What You’ve Read? Support CounterPunch
September 02, 2015
Paul Street
Strange Words From St. Bernard and the Sandernistas
Jose Martinez
Houston, We Have a Problem: False Equivalencies on Police Violence
Henry Giroux
Global Capitalism and the Culture of Mad Violence
Ajamu Baraka
Making Black Lives Matter in Riohacha, Colombia
William Edstrom
Wall Street and the Military are Draining Americans High and Dry
David Altheide
The Media Syndrome Between a Glock and a GoPro
Yves Engler
Canada vs. Africa
Ron Jacobs
The League of Empire
Andrew Smolski
Democracy and Privatization in Neoliberal Mexico
Stephen Lendman
Gaza: a Socioeconomic Dead Zone
Norman Pollack
Obama, Flim-Flam Artist: Alaska Offshore Drilling
Binoy Kampmark
Australian Border Force Gore
Ruth Fowler
Ask Not: Lost in the Crowd with Amanda Palmer
Kim Nicolini
Remembering Wes Craven’s The Hills Have Eyes
September 01, 2015
Mike Whitney
Return to Crisis: Things Keep Getting Worse
Michael Schwalbe
The Moral Hazards of Capitalism
Eric Mann
Inside the Civil Rights Movement: a Conversation With Julian Bond
Pam Martens
How Wall Street Parasites Have Devoured Their Hosts, Your Retirement Plan and the U.S. Economy
Jonathan Latham
Growing Doubt: a Scientist’s Experience of GMOs
Fran Shor
Occupy Wall Street and the Sanders Campaign: a Case of Historical Amnesia?
Joe Paff
The Big Trees: Cockburn, Marx and Shostakovich
Randy Blazak
University Administrators Allow Fraternities to Turn Colleges Into Rape Factories
Robert Hunziker
The IPCC Caught in a Pressure Cooker
George Wuerthner
Myths of the Anthropocene Boosters: Truthout’s Misguided Attack on Wilderness and National Park Ideals
Robert Koehler
Sending Your Children Off to Safe Spaces in College
Jesse Jackson
Season of the Insurgents: From Trump to Sanders
August 31, 2015
Michael Hudson
Whitewashing the IMF’s Destructive Role in Greece
Conn Hallinan
Europe’s New Barbarians
Lawrence Ware
George Bush (Still) Doesn’t Care About Black People
Joseph Natoli
Plutocracy, Gentrification and Racial Violence
Franklin Spinney
One Presidential Debate You Won’t Hear: Why It is Time to Adopt a Sensible Grand Strategy
Dave Lindorff
What’s Wrong with Police in America
Louis Proyect
Jacobin and “The War on Syria”
Lawrence Wittner
Militarism Run Amok: How Russians and Americans are Preparing Their Children for War
Binoy Kampmark
Tales of Darkness: Europe’s Refugee Woes
Ralph Nader
Lo, the Poor Enlightened Billionaire!
Peter Koenig
Greece: a New Beginning? A New Hope?
Dean Baker
America Needs an “Idiot-Proof” Retirement System
Vijay Prashad
Why the Iran Deal is Essential
Tom Clifford
The Marco Polo Bridge Incident: a History That Continues to Resonate
Peter Belmont
The Salaita Affair: a Scandal That Never Should Have Happened
Weekend Edition
August 28-30, 2015
Randy Blazak
Donald Trump is the New Face of White Supremacy
Jeffrey St. Clair
Long Time Coming, Long Time Gone
Mike Whitney
Looting Made Easy: the $2 Trillion Buyback Binge
Alan Nasser
The Myth of the Middle Class: Have Most Americans Always Been Poor?