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The American jobs Depression — and how to get out of it

Robert Reich, professor of public policy | October 3, 2011

The Reverend Al Sharpton and various labor unions have announced a March for Jobs. But I’m afraid we’ll need more than marches to get jobs back.

Since the start of the Great Recession at the end of 2007, America’s potential labor force – that is, working-age people who want jobs – has grown by over 7 million. But since then, the number of Americans who actually have jobs has shrunk by more than 300,000.

In other words, we’re in a deep hole and the hole is deepening. In August, the United States created no jobs at all. Zero.

America’s ongoing jobs depression – which is what it deserves to be called – is the worst economic calamity to hit this nation since the Great Depression. It’s also terrible news for President Obama, whose chances for re-election now depend almost entirely on the Republican party putting up someone so vacuous and extremist that the nation rallies to Obama regardless.

The problem is on the demand side. Consumers (whose spending is 70% of the economy) can’t boost the American economy on their own. They’re still too burdened by debt, especially on homes that are worth less than their mortgages. In addition, their jobs are disappearing, their pay is dropping, their medical bills are soaring.

Consumer spending slowed again in August as incomes dropped.

Businesses, for their part, won’t hire without more sales. So we’re in a vicious cycle. The question is what to do about it.

When consumers and businesses can’t boost the economy on their own, the responsibility must fall to the purchaser of last resort. As John Maynard Keynes informed us 75 years ago, that purchaser is the government.

Government can hire people directly to maintain the nation’s parks and playgrounds and to help in schools and hospitals. It can funnel money to help cash-starved states and local government so they don’t have to continue to slash payrolls and public services. And it can hire indirectly – contracting with companies to build schools, revamp public transportation and rebuild the nation’s crumbling highways, bridges and ports.

Not only does this create jobs but also puts money in the hands of all the people who get the jobs, so they can turn around and buy the goods and services they need – generating more jobs. Not exactly rocket science.

But congressional Republicans are firmly opposed. Why don’t Republicans get it? Either they’re knaves – they want the economy to stay awful through next election day so Obama gets the boot. Or they’re fools – they’ve bought the lie that reducing the deficit now creates more jobs.

Republicans claim businesses aren’t hiring because they’re uncertain about regulatory costs, or their taxes are too high, or they can’t find the skilled workers they need. But if these were the reasons businesses weren’t hiring – and consumer demand were growing – we’d expect companies to make more use of their current employees. The average number of hours worked per week by the typical employee would be increasing.

In fact, the length of the average workweek has been dropping. In August, it declined for the third month in a row, to 34.2 hours. That’s back to where it was at the start of the year – barely longer than what it was at its shortest point two years ago (33.7 hours in June 2009).

Republicans say America can’t afford to spend more. In truth, we’ll be in worse shape if we don’t. If the economy remains dead in the water, the ratio of public debt to the total economy balloons.

Besides, the United States can now borrow money from the rest of the world at fire-sale rates. Interest on the ten-year Treasury bill is now under 2%. That’s an almost unprecedented deal. With so many Americans unemployed and so much of our infrastructure in disrepair, this is the ideal time to get on with the work of rebuilding the nation.

But it won’t be enough for government to become the buyer of last resort – in Keynes’s words, to prime the pump. If the economy is to continue to grow and create jobs after the government has stopped the priming, there must be enough water in the well. Yet, now and in the foreseeable future, America’s vast middle class doesn’t have the purchasing power to keep the mechanism going.

For more than 30 years, the median wage in America has barely increased, adjusted for inflation – even though the economy is twice as large as it was three decades ago. Almost all the gains have gone to the top – especially the top 1%, who now receive over 20% of total income (it was just 10% in 1980).

As long as America’s vast middle class could continue to borrow on the rising value of their homes, they continued to spend – thereby keeping the economy going. But going deeper into debt is not a sustainable strategy. Now, after the bubble burst, America’s middle class doesn’t have enough money to maintain the economy at or near full employment.

Any long-term strategy for rescuing the American economy must therefore seek to reverse the widening gap in income and wealth. One place to start is tax reform. The earned income tax credit – a wage subsidy for lower-income workers – should be enlarged and expanded. Taxes on the middle class should be reduced – including social security payroll taxes (80% of Americans pay more in payroll taxes than they do in income taxes).

Taxes on the wealthy, on the other hand, should be increased. The president has proposed closing some tax loopholes that allow the super-rich to reduce their tax liability, and to end the tax cut on the rich put in place by George W Bush in 2001 (thereby increasing the top marginal tax rate to what it was under Bill Clinton – 39%).

But the nation should go much further, particularly in light of the large budget deficit projected several years from now. We need more tax brackets at the top, with higher marginal rates. The capital-gains tax (now at 15%) should be raised to match the income tax rate. And a wealth surtax of 2% should be applied to all wealth in excess of $7 million.

Needless to say, Republicans won’t go along with anything like this. They balk even at the president’s modest plan.

It would be better for President Obama to assume that he will get no Republican support this year and next, and build his 2012 election campaign around a bold plan to revive jobs and the American middle class — and end the American Jobs Depression.

Cross-posted from Robert Reich’s blog.

Comments to “The American jobs Depression — and how to get out of it

  1. Being out of work and collecting unemployment, I’m doing what I can at a personal level. I have not been able to find a job, either locally or regionally, so I decided to start an on-line business at Parents Teach Kids that uses my experience and knowledge as my “product”. Many experienced and skilled individuals could also do this; perhaps a trend would develop whereby reasonable solutions to social problems could develop and eliminate the need for governmental intervention, regulation, monitoring or funding.

  2. I am very frustrated over the level of discourse and the inability of progressives, Democrats, and the Press to deal with Republicans on basic issues and their responses to questions about their positions on issues.

    What they (republicans, so called conservatives, etc.) invariably do is instead of explaining their position and why they “believe” in it, they will put up a “straw horse” question like democrats hate private enterprise, democrats want to control everything, etc. and then attack this position which has nothing to do with an issue because they really don’t have anything behind their position other than keeping the status quo and protecting those who finance their elections and lust for remolding the U.S. into a grab bag for the rich and powerful interests who control them.

    If, each time this response occurs, the person looking for their position should say: if a reporter, you are not answering my question if a democrat talking head, “my friend.” you did not give a response to the issue, you only “made up” a counter position because you don’t have an answer, etc. This has been going on for so long it is driving me crazy and the only way to stop it is a massive effort to confront it each time it occurs. You, Dr. Reich, often do this in a very issue oriented way but people with the mental capacity and grasp of facts that you have are few and far between and 99% get sucked into a “defense” of positions they don’t have and/or are irrelevant to the original issue.

    I would have thought that Democrats would have figured this out a long time ago and developed a set of responses to end this game which they haven’t, and hopefully this would educate the press (or if there are 2 talking heads and a press representative, I would hope the democrat would say so and so never answered the last question and I believe he/she is doing this because they have nothing to say about that issue or something along those lines).

    So issues about jobs, the shrinking middle class, etc, are deflected into “straw horse” such as class warfare, unknown regulation fears, etc., and the democrat, press, or other moderator never comes back with “you haven’t answered the question, etc.. If they say, reduce regulations, the response is what specific regulations do you want eliminated, and how many jobs will that result in, and are their any negative impacts that might be a result of removing these regulations.

    The other area which is never talked about is how has much of the wealth exchange between big business and small business occurred over the last 30 years has to do with destruction of small businesses. Companies such as Walmart, Home Depot, CVS, McDonalds are basically economic engines of
    consolidation, cost reduction, and buying power. So, the Republican protectors of “small business” has watched this change take place which has resulted in some lower costs to the consumer but at the price of the destruction of large portions of the entrepreneurial middle class to the benefit of the wealthy class.

    While the horse is out of the gate, it is a complex issue which should be addressed to help explain what is going on and I believe their are large areas of non competition due to these changes and their are many monopolistic aspects to this structure…again, it is a complex issue but is a real issue.

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