The Jobs Crisis: What Did Roosevelt Do That Obama Should?

by: Martin Bennett and Richard Walker, Truthout | News Analysis

Friday 25 November 2011

The nation is experiencing the most severe economic crisis since the Great Depression. Princeton economist and former Vice Chair of the Federal Reserve, Alan Blinder, calls the current crisis a "national jobs emergency."

The "official" unemployment rate in September was 9.1 percent - nearly twice the rate a decade ago - leaving 14 million people out of work.

It's not just the financial meltdown of 2008 and the Great Recession. The American economy has been underperforming for years. Business Week calls 1999-2009 "The Lost Decade for Jobs" as private-sector employment grew by a paltry net 1.1 percent - the lowest increase for any ten-year period since the 1930s.

The original version of President Obama's increasingly embattled jobs plan aimed to provide a much-needed extension of unemployment benefits and a payroll tax cut for working Americans, but outlined only scarce measures to dent the catastrophic rate of unemployment. What we need today is a massive jobs program like the Works Progress Administration (WPA) launched by President Franklin Roosevelt. The WPA put millions of people back to work in the midst of the Great Depression, restoring their dignity, putting money in their pockets and quite literally saving lives.

The crisis is much worse than most of us think. According to the US Department of Labor, the real unemployment rate is 16.5%, when you count people whose unemployment benefits have run out and still are not working, part-time workers who want full-time jobs, and discouraged workers who have simply stopped looking. The Economic Policy Institute (EPI) reports that the number of long-term unemployed, meaning those unemployed for more than six months, hovers at a postwar record level of 45 percent. All these figures are much higher for black and Latino workers.

No one is insulated. Workers at every educational level have seen their unemployment rates double since 2007 - high school graduates, college graduates and even those with graduate degrees. The severity of the crisis has overturned conventional wisdom that higher education is a cure for joblessness. The unemployed do not need more education - they need work.

What Did Roosevelt Do That Obama Is Not Doing?

In the winter of 1933, with unemployment reaching 25 percent, Roosevelt established the Civil Works Administration, an emergency jobs program that put 4.2 million unemployed to work within six months. He also started the Civilian Conservation Corps to employ a half-million young men with minimal skills in useful work in the nation's parks, forests and rangelands. Meanwhile, Roosevelt launched the Public Works Administration, which funded long-term infrastructure projects such as highways, bridges, dams and public buildings.

The WPA followed in 1935, employing 8.5 million more between 1935 and 1943. It put those men and women to work on projects requested by state and local governments, such as roads, schools, sewers and airports, and operated local arts, educational and media programs.

Once the New Deal was launched in 1933, the US economy began to grow again by leaps and bounds - at a rate of nearly 10 percent per year. By 1937, production had doubled and the unemployment rate had dropped by half. By 1941, before the war began, the economy was back where it would have been had the Depression never happened. With the wartime build-up, mass unemployment became a distant memory.

To tackle our current unemployment crisis, the federal government should spend $500 billion a year over the next three years on emergency jobs programs like those of the New Deal. The first step would be to give every state and local government the funds to restore their budgets. The loss of 680,000 teaching, police, transit, and other public-sector jobs over the last three years has contributed measurably to the downturn.

The second step would be direct programs to create new full-time jobs for the unemployed - at the median wage of $16.27 an hour - in areas where the need is obvious: in schools (e.g., teachers, school maintenance and enrichment programs); human services (e.g., child care, home care and health care); and energy conservation (e.g., retrofitting homes and public buildings).

To this should be added a third step: financing large-scale public works programs to build schools, bridges, a "smart" electrical grid, zero-emission buses, high-speed rail, wind farms and affordable housing. The pathetic state of our national infrastructure has been decried for years by the American Society of Civil Engineers, which gives the country a D grade, and the United States ranks 32nd in the world in infrastructure, according to McKinsey Global Institute.

A substantial increase of government spending for public works will create expanded opportunity for youth, women and minority workers to enter state-certified apprenticeship programs in the construction trades and to earn a middle-class income.

How to Pay for Such a Jobs Program?

First, the federal government can run temporary deficits. While the federal deficit is relatively high at 10 percent of gross domestic product (GDP) in 2010, it is still dramatically lower than the peak of 30 percent of GDP during World War II. Contrary to popular thinking, government spending in a recession can lower the deficit by taking people off the unemployment roles and putting money in the hands of ordinary people to bolster consumer demand, which stimulates business and returns more tax revenues.

But since we are worried about the current federal deficit and the budget woes of state and local governments, we must heed investor Warren Buffett's call to "stop coddling the rich" by raising taxes on millionaires and closing corporate loopholes.

The upper 1 percent's share of national income increased from 9 percent in 1976 to 24 percent in 2007, according to a report by UC Berkeley economist Emmanuel Saez. Nearly half of total income went to the upper 10 percent in 2007, compared to 33 percent 30 years earlier. The top income tax rate on the highest earners was 70 percent between 1940 and 1980 - when the economy was performing much better than it is today - and now it is just 35 percent.

Moreover, corporate profits increased at an annual rate of $1.6 trillion in 2010 - a record for the postwar period. The Tax Policy Center reports that federal revenue from corporate taxes has dropped by half over the last 60 years, while corporations like Verizon, Bank of America and General Electric pay essentially no taxes due to loopholes in the tax code.

The Congressional Budget Office estimates that a 5.6 percent surcharge on incomes exceeding $1 million, as proposed by the Obama administration, will raise $40 billion a year. Ending the Bush-era tax cuts for the upper 2 percent, set to expire in 2012, will generate more than $80 billion a year, according to the Economic Policy Institute. Economists Robert Pollin and Dean Baker estimate that a 0.5 percent transaction tax on the transfer of stocks and securities will yield $175 billion annually from the largest financial institutions and speculators. The Center for Tax Justice calculates that federal tax revenue will increase by $365 billion a year if corporate tax loopholes and subsidies are eliminated.

Republicans oppose taxing the rich, just as they did in the 1930s. It will take popular mobilization by labor, faith, civil rights, women's and youth organizations to overcome such resistance - just as it did then. Occupy Wall Street may be the beginning of a movement for a new New Deal. Collective action worked in the 1930s and it could work again now.

The Legal Duty to Create Jobs

Lost in the Debt Ceiling Debate
By JEANNE MIRER and MARJORIE COHN

The debate about the debt ceiling should have been a conversation about how to create jobs. It is time for progressives to remind the government that it has a legal duty to create jobs, and must act immediately – if not through Congress, then through the Federal Reserve.

With the U3 official unemployment reaching over 9%, the U6 unofficial real rate over 16%, and the unemployment rate for people of color more than double that of whites, it is nerve wracking to hear right wing political pundits say the government cannot create jobs. Do people really believe this canard? On Real Time with Bill Maher a few weeks ago, Chris Hayes of The Nation stated that the government should create and has in the past created jobs, but he was put down by that intellectual giant Ann Coulter who said, "but they (WPA jobs) were only temporary jobs." No one challenged her.

Most of the jobs created under the Works Progress Administration (WPA) - and there were millions of them - lasted for many years, or until those employed found other gainful employment. They provided a high enough income to allow the worker's family to meet basic needs, and they created demand for goods in an economy that was suffering, like today's economy, from lack of demand. The WPA program succeeded in sustaining and creating many more jobs in the private sector due to the demand for goods that more people with incomes generated.

The most galling thing about pundits stating with such certainty that the government cannot create jobs is the implication that the government has no business employing people. In actuality, however, the law requires the government, in particular the President and the Federal Reserve, to create jobs. This legal duty comes from three sources:

1. full employment legislation including the Humphrey Hawkins Full Employment Act of 1978,
   
2. the 1977 Federal Reserve Act, and
   
3. the global consensus based on customary international law that all people have a right to a job with favorable remuneration to provide an adequate standard of living.
   

Full Employment Legislation

The first full employment law in the United States was passed in 1946. It required the country to make its goal one of full employment. It was motivated in part by the fear that after World War II, returning veterans would not find work, and this would provoke further economic dislocation. With the Keynesian consensus that government spending was necessary to stimulate the economy and the depression still fresh in the nation's mind, this legislation contained a firm statement that full employment was the policy of the country. As originally written, the bill required the federal government do everything in its authority to achieve full employment, which was established as a right guaranteed to the American people. Pushback by conservative business interests, however, watered down the bill. While it created the Council of Economic Advisors to the President and the Joint Economic Committee as a Congressional standing committee to advise the government on economic policy, the guarantee of full employment was removed from the bill.

In the aftermath of the rise in unemployment which followed the "oil crisis" of 1975, Congress addressed the weaknesses of the 1946 act through the passage of the Humphrey-Hawkins Full Employment Act of 1978. The purpose of this bill as described in its title is:

An Act to translate into practical reality the right of all Americans who are able, willing, and seeking to work to full opportunity for useful paid employment at fair rates of compensation; to assert the responsibility of the Federal Government to use all practicable programs and policies to promote full employment, production, and real income, balanced growth, adequate productivity growth, proper attention to national priorities.

The Act sets goals for the President. By 1983, unemployment rates should be not more than 3% for persons age 20 or over and not more than 4% for persons age 16 or over, and inflation rates should not be over 4%. By 1988, inflation rates should be 0%. The Act allows Congress to revise these goals over time.

If private enterprise appears not to be meeting these goals, the Act expressly calls for the government to create a "reservoir of public employment." These jobs are required to be in the lower ranges of skill and pay to minimize competition with the private sector.

The Act directly prohibits discrimination on account of gender, religion, race, age or national origin in any program created under the Act.

Humphey-Hawkins has not been repealed. Both the language and the spirit of this law require the government to bring unemployment down to 3% from over 9%. The time for action is now.

Federal Reserve

The Federal Reserve has among its mandates to "promote maximum employment." The origin of this mandate is the Full Employment Act of 1946, which committed the federal government to pursue the goals of "maximum employment, production and purchasing power." This mandate was reinforced in the 1977 reforms which called on the Fed to conduct monetary policy so as to "promote effectively the goals of maximum employment, stable prices and moderate long term interest rates." These goals are substantially equivalent to the long-standing goals contained in the 1946 Full Employment Act. The goals of the 1977 act were further affirmed in the Humphrey-Hawkins Act the following year.

A Global Consensus

In the aftermath of World War II, and for the short time between the end of the war and the beginning of the Cold War, there was an international consensus that one of the causes of the Second World War was the failure of governments to address the major unemployment crisis in the late 20's and early 30's, and that massive worldwide unemployment led to the rise of Nazism/facism. The United Nations Charter was created specifically to "save succeeding generations from the scourge of war." To do so the drafters stated that promoting social progress and better standards of life were the necessary conditions "under which justice and respect for obligations arising under treaties and respect for international law can be maintained."

It is no accident that one of the first actions of the UN was to draft the Universal Declaration of Human Rights. (UDHR or the Declaration). The Declaration was ratified by all then members of the United Nations on December 10, 1948. It is an extremely important document because it not only recognized the connection between the respect for human dignity and rights, and conditions necessary to maintain peace and security. The Declaration is the first international document to recognize the indivisibility between civil and political rights (like those enshrined in the Bill of Rights) on the one hand, and economic, social and cultural rights on the other. The UDHR is the first document to acknowledge that both civil and political rights are necessary to create conditions under which human dignity is respected and through which a person's full potential may be realized. Stated another way, without political and civil rights, there is no real ability for people to demand full realization of their economic rights. And without economic rights, peoples' ability to exercise their civil rights and express their political will is replaced by the daily struggle for survival.

The Declaration, although not a treaty, first articulated the norms to which all countries should aspire. It stated that everyone has the right to an adequate standard of living. This includes the rights to: work for favorable remuneration, (including the right to form unions), health, food, clothing, housing, medical care, necessary social services, and social insurances in the event of unemployment, sickness, disability or old age. There has been a conspiracy of silence surrounding these rights. In fact, most people have never heard of the Universal Declaration of Human Rights.

Similarly, most Americans do not know that the UN drafted treaties which put flesh on the broad principles contained in the Declaration. One of the treaties enshrines Civil and Political Rights; the other guarantees Economic, Social and Cultural Rights. These treaties were released for ratification in 1966. The United States ratified the treaty on civil and political rights and has signed but not ratified the economic, social and cultural rights treaty.

The latter treaty requires the countries which have ratified it to take positive steps to "progressively realize" basic economic rights including the right to a job. Almost all countries of the world have either signed or ratified this treaty. When most countries become party a treaty, they do so not because they think they are morally bound to follow it but because they know they are legally bound. Once an overwhelming number of countries agree to be legally bound, outliers cannot hide behind lack of ratification. The global consensus gives that particular norm the status of binding customary law, which requires even countries that have not ratified a treaty to comply with its mandate.

The Conspiracy of Silence

With the duty to create jobs required by U.S. legislation, monetary policy and customary law, why has the government allowed pundits to reframe the debate and state with certainty the government cannot do what it has a legal obligation to do?

We allow it because of the conspiracy of silence which has prevented most people from knowing that the full employment laws exist, that the Federal Reserve has a job-creating mandate, and that economic human rights law has become binding on the United States as customary international law.

Congressman John Conyers of Michigan knows about the Humphrey-Hawkins Full Employment Act, and he has introduced legislation that would fund the job creation aspects of that Act in the The Humphrey-Hawkins 21st Century Full Employment and Training Act, HR 870. It would create specific funds for job training and creation paid for almost exclusively by taxes on financial transactions, with the more speculative transactions paying a higher tax.

If Congress refuses to enact this legislation, the President must demand that the Federal Reserve use all the tools relating to controlling the money supply at its disposal to create the funds called for by HR 870, and to start putting people back to work through direct funding of a reservoir of public jobs as Humphrey-Hawkins mandates.

There is nothing that would prevent the Federal Reserve from creating a fund for job training and a federal jobs program as HR 870 would require, and selling billions of treasury bonds for infrastructure improvement and jobs associated with it. The growth in jobs would stimulate the economy to the point that the interest on these bonds would be raised through increased revenue. There is no reason the Fed on its own could not add a surcharge on inter-bank loans to fund these jobs. These actions could be done without Congressional approval and would represent a major boost to employment and grow the economy. If the Federal Reserve is going to abide by its mandate to promote maximum employment, and comply with the Humphrey Hawkins Act, and the global consensus it must take these steps.

Failure of the Fed and the President to take these affirmative steps is not only illegal, it is also economically unwise. The stock market losses after the debt ceiling deal is in part based on taking almost 2 million more jobs out of the economy and will only further depress demand creating further contraction in the economy. This is not an outcome any of us can afford.

A Permanent Jobs Program

Revamping the WPA
By MIKE WHITNEY

When the recovery began 2 years ago, the rate of unemployment was 9.5 percent. Today it's 9.1 percent. Think about that for a minute. Doesn't that prove that the market isn't really self-correcting after all? I mean, if the market was self-correcting then unemployment would have gone down by now, right? But, it hasn't. Why?

There's a long answer for that, and a short answer. The short answer is that unemployment can stay high forever if the wrong policies are in place. If you don't believe that, then vote Republican in 2012 and watch what happens when they start hacking away at public spending. Unemployment will soar to 15 or 20 percent in the blink of an eye.

So, it's the policy that matters not the market. And when the wrong policies are implemented, then demand weakens, people get laid off, and the economy goes into a funk. The good news is that we know how to fix the problem and get the economy revved up again. But the bad news is the politicians are not interested in doing what it takes to put people back to work. In fact, unemployment isn't even on their radar. Maybe that's because some of their bigshot constituents aren't bothered by high unemployment; in fact, they kind of like it. It crushes big labor and puts pressure on wages. Maybe that's why they haven't been griping. 

Look, the economy is just a reflection of the ideas of the people in power, right? That's why economics can't be separated from politics, because it is politics. And, it's totally agenda driven. There's no economic theory that's not agenda driven.

There's no reason why a recession has to drag on year after year. Everyone knows what needs to be done; it's just a matter of doing it. But, of course, that's not possible because "what needs to be done" conflicts with the objectives of the people who run the system. So the slump goes on and on and people get madder and madder until, finally, something snaps and the crowds pour out onto the streets and and start burning stuff down. That's how it works, isn't it? Have you checked out Athens, lately? How about Madrid, Lisbon, Dublin, or Reykjavik? People are pissed. And they're not pissed about the recession. They're pissed because they're getting reamed and they know it. They're pissed about the policy. 

So, is that where America is headed; massive public demonstrations and street violence?

Could be. It's hard to tell. If the politicians stick with the same policies that created the recession and high unemployment, then we're headed for trouble. But if they make a course correction and fix the situation, then things will improve. It's up to them. 

Think back to when Barack Obama first took office. The administration quickly slapped together an $800 billion stimulus package and rushed it through congress. What does that tell you?

It tells you that policymakers aren't really dopes, after all. It tells you that when the lights are blinking red they know what they need to do and they do it fast. The Obama stimulus stopped the bleeding (The economy was shedding 750,000 jobs per month when Bush left office) and gradually turned the economy around. It took a long time, but the patient finally started showing signs of life. 

At the time, no one talked about the budget deficits because they knew that avoiding another Great Depression was more important than a little more red ink. And, no one suggested that we forgo fiscal stimulus and try to stop the downward spiral by purchasing trillions of dollars of government bonds (QE) in an experiment that may or may not work. No one said anything like that, because they already KNEW that the traditional tried-and-true Keynesian methods of reversing the plunge would work. And they did work.

So what does that prove?

It proves that the people in power actually know what to do, but they pretend otherwise so they can pursue their own agenda. All this deficit hawkery and QE2 is just agenda-driven gibberish. It has nothing to do with fixing the economy or putting people back to work.

So what should we be doing to reduce unemployment and get the economy back on track?

Well, we should do what we did in the '50s, 60's and 70s when the economy was growing and the middle class was at its apex. We should implement the policies that focus on job creation and wage growth. Here's an excerpt from "The Crisis of Capitalism: Keynes Versus Marx" by Robert Skidelsky which sums it up perfectly:

"Keynesianism dominated the political economy of developed economies from the 1950s through to the mid 1970s. As Thomas Palley argues, 'economic policy was designed to achieve full employment, and the economy was characterized by a system in which wages grew with productivity. This configuration created a virtuous circle of growth. Rising wages meant robust aggregate demand, which contributed to full employment. Full employment in turn provided an incentive to invest, which raised productivity, therefore supporting higher wages'." ("The Crisis of Capitalism: Keynes Versus Marx", Robert Skidelsky)

British economist John Maynard Keynes knew that capitalist economies perform best at full employment because the additional spending leads to widespread prosperity and stronger growth. But, as Skidelksy points out, the government has a role to play in sustaining employment to ensure the economy operates at maximum capacity. Here's more from the same article:

"Public Investment & Full Employment

Keynes's answer ... is for the state to ensure enough investment and/or consumption in the economy to maintain continuous full employment.....The key to any restoration of a Keynesian political economy is thus the rehabilitation of the state as an instrument of the public interest...."

So the government should be directly involved in maintaining full employment. That means that fiscal stimulus has to be provided at various points in the business cycle to keep things running smoothly. But, as Professor Alan Nasser points out in a recent article in CounterPunch, there are two kinds of fiscal stimulus; one that works, and one that doesn't. It's an important distinction that needs to be clarified. Here's an excerpt from Nasser's article:

"...Closing the employment gap requires a specifically targeted stimulus, intended to stimulate not merely aggregate demand, but "effective demand". This was the kind of stimulus Keynes had in mind as his remedy for chronic unemployment. Aggregate demand stimulation is not authentically Keynesian. Keynes was explicit that the goal of macroeconomic stabilization policy is "a closer approximation of full employment as nearly as is practicable." (The General Theory, p. 378-379)
He was unambiguous as to the principal effective means of accomplishing this goal: direct government job creation through public works projects....

If boosting effective demand is the explicit goal of fiscal policy, then work projects and the jobs they require must be provided directly by government. A resurrected Works Progress Administration is what will do the trick." ("Putting People to Work; The Kind of Stimulus We Need", Alan Nasser, Counterpunch)

Bravo, Professor Nasser. That's exactly what we need, "direct government job creation through public works projects". Another W.P.A.

Full employment is not a pipedream. In fact, it's an easily achievable goal if we're willing to use state resources. The problem is that big business opposes public works programs because they encroach on a potential source of profits for private industry. So, the corporate bosses usually mount expensive public relations campaigns lambasting WPA-type programs as "inefficient" or wasteful "make work" projects in an effort to sway public opinion. The propaganda has had a damaging effect on people's perception of government workers and the vital services they provide. 

Still, there have been times when progressives have made real headway on the issue of full employment, like in 1978 when The Humphrey-Hawkins Full Employment and Balanced Growth Act was finally passed. Here's an excerpt from an article by Nancy E. Rose in the Monthly Review:

"Support for a permanent jobs program resurfaced again in the 1970s with the Humphrey-Hawkins Full Employment and Balanced Growth Act. The original bill promised to "establish and guarantee the rights of all adult Americans able and willing to work to equal opportunities for useful paid employment at fair rates of compensation.".....Its centerpiece was a countercyclical public service employment program. The government would serve as employer of last resort for people unable to find jobs through the labor market, establishing a program that would go into effect when the unemployment rate rose above 3 percent. Wages would be set at "fair rates of compensation," the highest of prevailing local wage rates, the minimum wage, or wages specified in existing collective bargaining agreements." ("Lessons from the New Deal Public Employment Programs", Nancy E. Rose, Monthly Review)

If the government is expected to be the "buyer of last resort" for all manner of dodgy mortgage-backed assets (owned by the banks), then why can't the government be the "employer of last resort" for the millions of people who--through no fault of their own--can't find a job?

Humphrey-Hawkins doesn't encroach on the potential profit centers for big business, (The bill explicitly states that the government should rely on private enterprise whenever possible.) but it does give the government the ability to create a "reservoir of public employment" if the private sector can't keep enough people working. 

Isn't that what progressives really want; a "permanent jobs program" that spares people the indignity and desperation of being unemployed?

It's all there in Humphrey-Hawkins. It just needs a little dusting off and a mobilized left that's willing to do the heavy lifting.

Putting People to Work

The Kind of Stimulus We Need
By ALAN NASSER

"Our greatest primary task is to put people to work."
-- Franklin Delano Roosevelt's 1933 inauguration address

No reasonable economist denies that the economy's problems are grave and that some kind of remedial stimulus is required. Stimuli are of two kinds, fiscal and monetary. Fiscal stimuli subdivide into two types, one aiming to boost aggregate demand, the other to stimulate effective demand. Both types require, in a sustained recession, large-scale government deficit spending, which is presently ridiculed in Washington and Wall Street and given no serious consideration. On the contrary, policy makers' priority is to give deficit reduction the highest priority. This leaves but one alternative, to stimulate hiring and spending by monetary means, which has meant purchases by the Federal Reserve of Treasury bonds, now termed Quantitive Easing (QE).

Ben Bernanke's second round of bond buying, QE2, has been a grand flop. Housing sales and prices are falling at an unhealthy clip, foreclosures and bankruptcies continue to mount and QE2 has had no measurable impact on the dismal employment picture. Nor should we expect it to. A study by the highly reliable Macroeconomic Advisors indicates that even an additional $1.5 trillion bond purchase by the Fed would reduce unemployment by a mere two tenths of one percent. (J. Hilsenrath, "Fed Fires $660 Billion Stimulus Shot", Wall Street Journal, November 4, 2010)

Progressives and all Leftists feel vindicated in their insistence that fiscal stimulus is the order of the day. Obama's February 2009 stimulus, it is argued, was on the right track. It saved the economy from a major collapse and created as many as 2 million jobs. But it was not enough to bring the economy to anything close to full employment or to reverse the housing decline and restore homeowners' equity.

The deficit doves conclude from this that a far bigger stimulus was required. The only problem with the administration's stimulus was its size. The notion that the principal Keynesian agenda is to stimulate aggregate demand is taken to be axiomatic. But it isn't.

Two Kinds of Fiscal Stimulus: Keynesian and Conventional/Neoliberal

The problem is not merely the size of the stimulus. The kind of stimulus adopted can make all the difference. Indeed, the kind of fiscal stimulus is what is at issue. This is overlooked by those who see that the impotence of monetary policy justifies the promotion of a fiscal alternative. But it's not enough to know that. For there are two kinds of fiscal stimulus corresponding to two possible policy goals. One has been demonstrated to work. The other has not fared so well.

Policy goals have to be precisely stated. Government might aim to close the "output gap", the difference between what the economy could be producing given existing resources, including of course the employable labor force, and what the economy is producing. This aim would require stimulating the production of total output. Government would take measures to stimulate the growth of Gross Domestic Product (GDP). But there is an alternative goal. Government might seek to close the employment gap, the different between the number of employable workers and the number of workers actually employed. The difference between these two aims of stimulus policy is not merely semantic.

Closing the output gap is a general and somewhat vague objective. It aims to stimulate "aggregate demand" or "growth". Closing the employment gap requires a specifically targeted stimulus, intended to stimulate not merely aggregate demand, but "effective demand". This was the kind of stimulus Keynes had in mind as his remedy for chronic unemployment. Aggregate demand stimulation is not authentically Keynesian. Keynes was explicit that the goal of macroeconomic stabilization policy is "a closer approximation of full employment as nearly as is practicable." (The General Theory, p. 378-379) He was unambiguous as to the principal effective means of accomplishing this goal: direct government job creation through public works projects.

The fiscal stimulus agenda of the Obama administration has been to stimulate aggregate demand. This is what some of the most prominent "Keynesian" economists urge. Paul Krugman writes that "we need policies to sustain aggregate demand." (New York Times Blog, January 19, 2011) And Joseph Stiglitz tells us that "the deficit increase has been caused by the enormous shortfall between the economy's potential and actual output." (Politico, March 28, 2011) Framing the problem this way reinforces the notion that the desireable goal is to increase the magnitude of the GDP. This policy has been ineffective in its stated purpose, to reduce unemployment. But the problem is not merely that the stimulus was not large enough.

The Achilles heel of aggregate demand policy is its implicit reliance on the market, and hence on a form of trickle-down theory. If the goal is merely to stimulate the production of GDP, government will provide incentives to companies to hire workers and to banks to provide credit. The former alternative consists of tax breaks and the latter of gifts of liquidity to the banks. We have seen that these policies do not work. The financial incentives do not trickle down to wage earners because employers will not hire and lenders will not lend to households with strikingly insufficient purchasing power. In a word, the problem is lack of effective demand.

The aggregate demand approach is what has passed as Keynesian policy since the end of the Second World War. Liberal champions of fiscal policy have sought to stabilize household incomes and consumption, and investment. There has been no direct effort to "stabilize", i.e. boost, employment. Jobs would be created, it was assumed, as a byproduct of stimulating household and business spending.

The Inadequacy of Conventional Market-Based Aggregate Demand Fiscal Policy

Is there any reason to believe that macroeconomic pump-priming has over the years significantly ameliorated capitalism's nagging unemployment problem? The key challenge here is to find a measure that gives a revealing picture of the situation of the unemployed over a three or four decade period. The recent record has been unarguably dismal. Obama's stimulus, The American Recovery and Reinvestment Act (ARRA) of early 2009, was touted as the launch of a strong jobs recovery. The Romer-Bernstein Report, released shortly after the ARRA legislation was passed, argued that without ARRA the unemployment rate would have peaked at 9 percent, and projected that with the stimulus unemployment would peak at no higher than 8 percent and would quickly fall through 2009 and into 2010. In fact, unemployment peaked at 10 percent after ARRA was passed and has hovered between 9 and 10 percent ever since.

To the extent that the unemployment rate has stabilized, i.e. not risen further, the predominant causal factor has been the great increase in discouraged workers who have given up looking for work. We are now witnessing the longest running decline in the labor force participation rate in postwar history. The employment-to-population ratio has not been as low as it is now -58 percent- since the Reagan-Volcker recession of the early 1980s.

Two current trends suggest a good measure of the long-term effectiveness of conventional fiscal policy. We are seeing both the mass destruction of full-time jobs, many of which will never return, and record levels of long-term unemployment (unemployed for 15 weeks or longer). Most revealing is that long-term unemployment has been rising since the late 1960s, and the short-term unemployed have been a shrinking percentage of all unemployed throughout the entire postwar period. Looking at the business cycle over the last forty years, a striking and ominous trend emerges: in each business-cyclical expansion, the long-term unemployment rate remains either at or above the level of the previous expansion. In a word, for the last forty years the short-term unemployed have been a declining, and the long-term unemployed an increasing, percentage of all unemployed. Is this what we should expect from successful conventional fiscal policy? (1)

The Virtues of Effective Demand Policy and Elite Resistance To It

If we want to close the employment gap, i.e. the labor demand gap, and not merely the output gap, the agenda should be to boost effective demand, not just overall output. This sharpens the policy objective. The unemployed are not evenly distributed across the country, and all cities and states are not distressed in the same way. This particular labor market is especially loose, that particular city is in especially dire straits. To be sure, desperation is evident across the board, but many of the illnesses and so the remedies are so to speak site-specific. Keynes recommended stimulus where it is needed. Jobs are needed for this specific infrastructure project, in this region, which requires workers with these skills and equipment of this kind.

If boosting effective demand is the explicit goal of fiscal policy, then work projects and the jobs they require must be provided directly by government. A resurrected Works Progress Administration is what will do the trick. It's a reasonable bet that attempts to stimulate the abstraction Aggregate Demand will do nothing for working people.

Aggregate demand policies work through the market; effective demand policies are initiated and implemented by government. Obama has repeatedly affirmed that any politically acceptable remedy for intractable joblessness must be market-based. His administration is commited to the view that "[While] government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector." In the same speech, he admonished those who push for a government jobs program "to face the fact that our resources are limited…It's not going to be possible for us to have a huge second stimulus, because frankly, we just don't have the money." (Speech at "jobs summit", December 3, 2009) The "critical role" that Obama assigns to government is of course giving tax breaks to companies and cash to banks.

The Obama administration has thus rejected effective demand management. Washington has pledged allegiance to its owners, the owning class. Logical arguments and steel-trap reasoning will not move the ruling class to adopt a policy whose first priority is to meet the specific needs of the working class. A genuinely Keynesian fiscal policy was embraced by FDR only after the mass actions of the 1930s. The labor actions of 1934 came close to a general strike. In that year San Francisco longshoremen called a West coast strike in defiance of their union leaders. 14,000 longshoremen and 25,000 maritime workers struck from Seattle to San Francisco. On the East coast textile workers coordinated a strike all along the coast. There were strikes by Auto-Lite workers in Toledo and Teamsters in Minneapolis. Sufficient fear of worker radicalization was struck in FDR to motivate the creation of Social Security and the large-scale public spending, employment-generating New Deal projects initiated less than a year after the labor upheavals, in 1935.

The key issue for the Left is clear: what are the present obstacles to mass mobilization, and how can they be overcome?

The Case for a New WPA

Why many are calling for a modern incarnation of the Depression-era program.
by Kate McCormack | Monday, July 12, 2010 YES! Magazine

In 1933, when Franklin Roosevelt took office with the promise of government action to relieve destitution, unemployment had reached nearly 25 percent. As part of that commitment, his administration created the WPA, a permanent jobs program that put 8.5 million Americans to work between 1935 and 1943. The WPA was a massive public undertaking that changed the face of a growing nation. In addition to providing jobs to millions, it brought the nation's transportation system into the 20th century and brought art to people of all classes, leaving the U.S. with a rich legacy of oral history and artistic masterpieces.

Many organizations are calling for a modern incarnation of the WPA both to assist the nation's 6.5 million long-term unemployed and to advance national priorities, from transitioning to clean energy to modernizing infrastructure to supporting the arts. A new WPA could help support:

Jobs

In 1938 the WPA was the largest employer in the nation. For every job it created, two jobs in the private sector were created indirectly. Today, with unemployment seemingly stuck above nine percent and concerns that young workers will never fully recover from slow-starting careers, a new WPA, like its predecessor, could be the answer. The WPA was an important strategy for lowering unemployment and reducing the human suffering of economic recession. Government can hire people that the private sector typically does not: the long-term unemployed, young people without work experience, people from chronically underemployed populations, older workers nearing retirement, and workers with criminal backgrounds. Job experience and training can help these workers move into new industries for the long term.

Green Infrastructure

A new WPA could also help modernize an American infrastructure in desperate need of overhaul. The American Society of Civil Engineers gave the U.S. a grade of "D" in categories ranging from drinking water to transit to hazardous waste management, and estimates that $1.6 trillion in investment is needed over five years to bring dams, bridges, roads, sewers and other public projects up to par.

The first WPA played a huge role in modernizing the United States' 19th century infrastructure. Workers built 650,000 miles of roads, 78,000 bridges, and 125,000 public buildings. The WPA built parks, zoos, public pools, golf courses, and even ski hills, many of which are still in use.

This incarnation of the WPA should focus on creating green jobs to decrease U.S. reliance on fossil fuels. WPA workers could perform overdue energy assessments on public buildings and help boost their energy efficiency; build improved and expanded transit systems; or overhaul sewer systems to stop disastrous overflows and protect fresh water sources.

The Arts

The WPA also brought art to the public through Federal Project Number One, which included the Federal Art, Theater, Music, and Writers' Projects. During the life of the WPA, musicians performed 225,000 concerts for 150 million people, many of whom had never seen a concert. They also produced nearly 475,000 works of art, which still decorate post offices, courthouses, and other public buildings.

The Farm Security Administration's (FSA) photography project documented the life of the rural poor through photos. The motto of the program was "introducing America to Americans." The project produced more than 160,000 photos, many of which are iconic today, and captured the struggles of thousands of Americans.

The FSA was not the only project determined to "introduce America" to her citizens. The Writers' Project original goal was to produce accessible, detailed guides to every state in the union so that people could learn about their country. But one of the project's most enduring and important was the Slave Narrative Collection. Between 1936 and 1938, writers conducted more than 2,000 interviews with former slaves in seventeen states. The interviews gave ex-slaves the opportunity to describe what they had lived through and are an important part of the nation's collective memory.

A modern day Writer's Project could bring music, art, and theater back to cash-strapped public schools. It could also hire journalists and writers who have been laid off from the shrinking newspaper and publishing industries to collect oral histories from survivors of World War II and the Civil Rights Era.

True Majority is advocating for a new WPA, while Campaign for America's Future and many other organizations are pushing the Local Jobs Act for America, a bill designed to save local jobs and services, authored by California Rep. George Miller. Notably, the Local Jobs Act lacks WPA-style funding for artists. You can show your support for a modern WPA by signing their petitions, and by calling on Rep. Miller to add funding for the arts to the Local Jobs Act.

It is difficult to quantify the priceless legacy of WPA projects; the highest honor that could be paid to the visionaries of the past would be to repeat their efforts. Maybe the time has come to "introduce America to Americans" all over again.