Wall Street’s raking in massive profits and paying its execs and traders record bonuses, thanks in part to government cash. What about ordinary Americans?
Working Americans continue to suffer from the worst financial crash since the Great Depression, and Washington has so far offered up only band-aids to help them out — extended unemployment benefits, small stimulus checks and deeply flawed mortgage relief programs that have done little to stem the tide of foreclosures.
The stimulus plan passed earlier this year appears to have been too modest in scope, as many economists warned at the time. While it helped halt the economy’s free-fall collapse, unemployment still topped 10.2 percent last week, and analysts warn us that “bleak data point to a stark future for job seekers and employers.”
But while caution’s prevailed in Washington when it comes to bailing out “Main Street,” Wall Street’s enjoyed a degree of socialism that would make Hugo Chavez blush. The Obama administration has essentially continued Bush’s policy of loading up dump trucks with tax dollars at the Treasury and dropping them on the banks with little oversight and next to no strings attached.
And it’s had an effect, at least on the banks’ bottom lines. AIG, the insurance giant whose near-collapse last year almost brought down the entire financial system, reported its second consecutive quarterly profit after being rescued by Uncle Sam. Unlike American workers, the company is getting back on its feet after an injection of an almost impossible-to-grasp number of tax-dollars.
AIG’s fortunes are not unique. All of Wall Street’s survivors are raking in massive profits and paying their execs and traders record bonuses.
The disconnect between the banks’ fortunes and those of working Americans makes the question posed by a recent “news analysis” by Washington Post staff writer Alec MacGillis so relevant: “Why Won’t Obama Give You a Job?”
MacGillis writes that while the White House says the stimulus passed earlier in the year “created or saved” 640,000 jobs, the “national unemployment rate has now hit 10.2 percent,” and asks:
Why has a White House that talks so much about boosting employment steered clear of the most direct strategy that could keep Americans on the job?
Since taking office, the Obama administration has studiously avoided paying people to go to work, which could be accomplished by subsidizing workers’ private-sector employment or by creating new government-paid jobs. There are programs in a handful of states that financially compensate employees who cut their hours … But the Obama administration has so far opted not to expand this initiative. And aside from a small summer employment program for young people, it has not sought to create jobs on the public payroll, something the country did in the 1930s and 1970s.
MacGillis offers that “engaging in more forthright job creation could invite some political pitfalls (such as those constant accusations of socialism),” and then asks: “but is double-digit unemployment any less a political risk?”
It’s the kind of rationalism that can blind political observers, and ultimately MacGillis leaves the disconnect between policy and politics unaddressed.
There are competing explanations for Democrats’ habitual timidity when they have an opportunity to govern. Take your pick: internal party politics — skewed Rightwards by the influence of the Blue Dogs — the Dems’ reliance on fat campaign contributions from Wall Street; an institutional fear of “those constant accusations of socialism”; the organizing skills of their conservative opponents or the fact that the White House policy apparatus is packed with Clinton administration vets, former Wall Streeters and other adherents to classical economic orthodoxy.
Whatever the case, the moves they’ve made to offer relief to ordinary working families haven’t been as bold as their interventions in the financial sector. Not only did many economists view the stimulus package as too small relative to the depth of our economic malaise, but a good chunk of the funds went for tax cuts, and for long-term investments, like “green energy” subsidies, which have limited bang for the buck in terms of generating jobs over the short haul.
Aid to states with crippled tax revenues was crucially important for heading off mass layoff of public employees, and extending unemployment bennies and food stamps cushioned the blow for many families. But much of the job-creation dollars went into so-called “shovel-ready” projects — back-logged transportation repairs and other long-ignored infrastructure fixes. Those dollars protected the jobs of some workers who would have been laid off, yes, but didn’t create many new ones.
With an ever-expanding workforce, the economy needs to generate new jobs. The employment report last week revealed a noteworthy pattern: the number of workers being cut by employers has dropped dramatically since the worst of the crisis, but almost no new jobs are being added to the labor market. A variety of unprecedented interventions may have stopped firms from shedding jobs left and right as they were a few months ago, but with growth in the near future looking tepid at best, employers aren’t expanding and new positions aren’t being created.
So most people who have gigs are keeping them right now — and real wages have even started to inch up again — but those without work face daunting job prospects. And more than one in six Americans in the workforce — a stunning 17 percent — are now out of work or under-employed (forced to work part-time or in temporary positions because they can’t find a steady job).
It’s not just that those people are screwed, even though that’s enough to justify some action on the issue. While employment is often called a “lagging indicator” of recovery, it’s important to understand that the economic crisis in which we find ourselves is not just a function of a shaky financial system but of a crash in consumption that’s come along with the evaporation of $14 trillion worth of the wealth of American families — wealth, and spending power, that vanished as home prices crashed and 401(K) balances were devastated. Until recently, the number one cause of home foreclosures was low-introductory-rate mortgages resetting to higher payments; in recent months that’s changed, and now unemployment has surged to the top of the list of reasons people can’t make their payments.
So the recovery of ordinary families is vital to our economy’s recovery overall. Home values, lending and consumer spending aren’t going to bounce back until the economy starts generating jobs at a rapid clip, and that’s not going to happen until people get back on their feet and start spending money. That Catch-22 is precisely why we’re facing a long and underwhelming recovery at best, and why avoiding more aggressive measures to buoy the job market is myopic.
Julianne Malveaux argues that we’ve been here before, and that we should take a lesson from history:
Eighty years ago this week, the stock market crashed and ushered in the Great Depression. We need to apply the lessons from that era to our own to relieve the needless suffering of the Great Recession…
Private markets weren’t about to create jobs, and the public sector became the employer of last resort. The job creation from the WPA provided survival and sustenance for millions of American families. Where is the contemporary WPA?
“Absent public job creation,” she adds, “it is likely that the economy will not fully recover.”
Experts at the Economic Policy Institute proposed just such a program as part of a “five step plan to end the jobs crisis,” calling for $40 billion — about the price of four months of operations in Iraq and Afghanistan — in the first year to pay people to spruce up their communities:
The kind of work that can be done is as varied as the nation’s hundreds of thousands of communities and their needs. Environmental clean-up, stream restoration, community policing, before- and after-school care of children, demolition or boarding up of abandoned houses and buildings, parks improvements, home health care, and preservation of historic buildings are just a few examples.
But parallels between 1929 and 2009 are imperfect, and there are ways to go about putting people to work other than paying people the going rate to paint sidewalks. In his WaPo piece, Alec MacGillis writes that American University’s Robert Lerman “offers a variation”:
Pay people lower-than-market wages, maybe $8 an hour, and reserve the jobs for those who really can’t find better work. Instead of extending unemployment benefits over and over, the government would help people develop job skills and would get something in return. He estimates the cost of 1 million jobs (including supervisors) at $30 million, or about $30,000 for each job created, compared with the $92,000 per job that the White House estimates its approach is costing.
Dean Baker, co-director of the Center for Economic and Policy Research, offered another proposal to create jobs at a per-job cost far lower than that of the stimulus:
The government can give [employers] a tax credit of up to $3,000 in order to shorten their workers’ hours while leaving their pay unchanged. The reduction in hours can take the form of paid sick days, paid family leave, shorter workweeks or longer vacations. The employer can choose the method that is best for her workers and the workplace.
If take-home pay is left unchanged as a result of the credit, then demand should be left unchanged. If workers are on average putting in fewer hours and demand is unchanged, then employers will need to hire more workers.
This logic is about as simple as it gets. The process is also quick and cheap. In principle, the government can go this route to save jobs at a cost of a bit more than $20,000 per job, far less than the estimates of the cost per job under the administration’s stimulus package.
Baker notes that we don’t need to speculate as to whether the approach would work: “Germany put a short-hours program in place at the start of its recession. Its unemployment rate today is 7.6 percent, about the same as the unemployment rate it had going into the recession,” he writes.
Democrats in Washington understand the depth of the problem, and the political risk it carries (Obama’s approval rating has declined along with voters’ belief that the country is on the right track). This week, lawmakers vowed to start work on a jobs bill of some sort — perhaps pushing back climate change legislation — and the administration announced that it would hold a summit next month to address the jobs crisis.
But will the kind of bold and direct approaches progressive economists are calling for be “on the table”? If the history of the first 11 months of the Obama administration is a guide, they won’t; expect something built largely around business-friendly tax-credits for employers who add jobs (which, to be clear, can be quite beneficial as part of a broader recovery strategy but has limited bang as a stand-alone approach).
If that proves to be the case, Americans will face more protracted economic pain and the Democrats’ cautious approach will come with a price next Fall, and perhaps in the Fall of 2012. Propping up the banks alone isn’t enough; people vote on the economy they and their neighbors live in, not on abstractions like how many dollars banks are lending or the share price of Goldman Sachs.
It’s a kind of tragic irony: believing that they always have to hew to an artificially manufactured “center” to get elected, Democratic leaders risk electoral disaster by taking aggressive and direct interventions to boost the “Main Street” economy “off the table” —the very moves that would have a tangible impact on communities devastated by the down-turn over the short-term.
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