This diary entry follows on an earlier entry here ("The Job Crisis - Not the Budget - is the Source of Electoral Discontent" 11/18/09) that identified the job crisis as the central issue for the Democratic Party to address, if it wants to stay in power.
The current employment crisis in this country is not simply the consequence of the recent economic recession/depression. More than that, the economic meltdown of 2008 exposed a myriad of structural problems that have been draining the country of living wage work for 30 years. While these structural problems will take some time and extraordinary political courage to face and constructively address, time is not a friend to the Democratic Party or President Obama. When 16 million Americans or more are chasing 3 million jobs or less - and no change in that situation is likely to come - forthright and direct intervention in the job market is the most important issue for the Federal government to address. While a new WPA project will not 'solve' 30 years of cynically inspired economic trends, laws, agreements and practices, it will give the President and Congress more time to address the underlying causes of the crisis. Please read on....
The Death of the Living Wage Job
The most common response one hears when the subject of rising employment comes up, is that it’s the current economic crisis is the cause. Such comments invariably imply – if not outright suggest – that once the credit markets are operational and the private sector is back and booming, that the employment crisis it produced will be resolved by the invisible hand of the marketplace.
But as President Obama acknowledged several weeks ago, it will take years for the job market to return to its old form. This is not simply because employment lags behind the stock market, but because this crisis is the consequence of 30 years of supply-side, free-trade economics. These policies – advanced by both parties, all sectors of capitalism and much of the intellectual world – have gutted the American economy of living wage jobs. Outsourcing, downsizing, privatization and contingent labor practices have destroyed our domestic job market, not simply in the private sector, but in the public sector as well. Not only have jobs disappeared, but - if nothing substantial is done - this moment may be marking the death of living wage work. More than simply a 'cause' for rising unemployment, the economic meltdown of 2008 exposed the destructive processes that have been transforming our job market since the age of Reagan.
The Failure of the Stimulus Plan to Create New Jobs
The stimulus plan crafted and advanced by both political parties was based on supply-side economics. That is, seed the elite institutions with cash and eventually that money will make it to the streets in the form of new business loans, expanded credit and, of course, jobs. Banks were the obvious beneficiaries and little was gotten in return for public generosity. States were the second beneficiaries and while many state jobs were saved by this intervention, few, if any, new jobs were created. Indeed, many states and municipalities shed workers or reduced full-time jobs to part-time ones. The banks benefitted again, since the states were able to avoid defaulting on their debt arrangements. Some sectors – most notably the auto industry – were actually rewarded for shedding jobs and restructuring employment relationships. Further, the indirect manner in which the stimulus plan sought to address job loss and creation masked any benefits and created far too many opportunities for budgetary shenanigans, such as cutting funding to agencies that were receiving stimulus funds and playing bookkeeping tricks to create the illusion of job creation when none were created.
In the end, the money never reached the streets. The job crisis has continued to escalate – even if some state employees were spared the axe – and while the stock market has begun to recover, the private sector shows no sign of creating new jobs. Indeed, some of the recent profit making in the private sector are the savings made from shedding jobs.
Why The Private Sector Won’t Save Us
While some intervention was necessary to sustain the banking system – though far more radical reform was in order – and saving state governments from bankruptcy critical to stabilizing the economy and the delivery of government services, it was naive of our political leaders to think that the private sector was going to solve the employment problem. There is just too much profit to be found in downsizing, outsourcing, subcontracting and exploiting contingent and non-American workers. Why hire a full time American worker with benefits, when someone in India, China or Indonesia (or an illegal immigrant here) can do that job for a fraction of the cost? Why hire a full time worker when you can hire two, three or more temporary workers for the same money? Why hire anyone when you can use a computer program to do the job? Why hire anyone when more profit can be gleaned from its stock value or by breaking up a company and selling its assets? Why hire anyone when merging two or more companies can facilitate profits by shedding workers?
Addressing the Structural Causes
Addressing the structural causes of this crisis will take years to accomplish and far more political courage than we’ve seen in Washington for decades. But they must be addressed. Our free trade agreements need to be renegotiated and democratized. Regulations, rules and laws that facilitated the flight of living wage work need to be identified and rectified. The exploitation of contingent and non-American workers must be confronted and punished, but that will require going through each industry and developing instruments that address specific sector realities. We need to radically reconfigure our definitions of poverty and use better economic statistical models so that these definitions and statistical tools more accurately reflect everyday lived reality. We need to restructure the tax code, regulatory agencies and rules so that the predatory practices of Wall Street and the investment industry no longer destroy our domestic economy. And new employment markets must be developed so that those who worked in industries and jobs that no longer exist may find new work.
Why We Cannot Wait
Some of this work has begun. But it will take time to work through 30 years of neglect, abuse and damage. Unfortunately, time is a luxury that the Democrats don’t have. Midterm elections are coming up in 12 months and the mood of the electorate is already ugly. Midterm elections are won by the enthusiasm of a party’s political base and the Democratic Party has a notoriously bad relationship with its base, unlike the Republicans. The sagging poll numbers for Obama and the Democratic Congress are a clear indication that if something isn’t done to address the job crisis, there maybe be a bloodbath at the polls in a year’s time.
Contrary to corporate media punditry, it wasn’t the independents that put the Democrats over the top. As I’ve noted elsewhere, Obama won by 9.5 million votes and 9.2 million new voters cast a ballot in that election (compared to the 2004 election). Those new voters were mostly poor, working class, Black and Latino. These constituencies have been the hardest hit by the job crisis and they trust the Democratic Party the least. Yet, without them, the Democratic Party will be exiled to the wilderness.
Under these circumstances, symbolic gestures and abstracted, indirect forms of economic mediation will not satisfy their needs or concerns. Only clear, massive and direct intervention that they can see, feel and count in their wallets will be seen as making a difference. Those new voters and their constituencies already demonstrated their political power by not showing up to the polls in the most recent election. Nor will they show up to the next one, unless their visceral material needs and concerns are addressed in such a way that is clear to them who has their best interests at heart.
Deficits, Politics and the Budget
All strategies to address this problem will cost money, including doing nothing. I know Obama wants to dedicate 2010 to deficit reduction, but the state of the job market will not permit that yet. If he goes for fiscal austerity over economic triage, his party will get hammered at the polls in 12 months time. Yes, a 12 trillion dollar national debt is a real issue, especially since we are so dependent on foreign investment to sustain our deficits. But the needs of the domestic economy trump all other concerns, including war and the military-industrial complex. This deficit may not be Obama’s doing – Bush did what no other leader has done in recorded history, started wars and cut taxes – but the problem is still his to solve. If the cries of fiscal conservatives must be addressed, then let them take responsibility - along with the rest of us - for getting out of the wars we're in, cutting the defense budget down to the levels of our allies and enemies and use the savings for inward investment.
Raising taxes is a dodgy business in an economic down cycle. A poorly placed tax can negatively impact employment or economic activity. While addressing tax inequity is a critical issue, timing is everything here. But if the endless wrangling over health care reform is any harbinger of what we will see when Congress addresses our tax code, I shudder to imagine the mess. This issue most certainly better handled in small bites with careful attention to the knock on effects of any effort.
In the end, the excuses and howling of fiscal conservatives cannot stand in the way of addressing this crisis, especially since this crowd was and remains conspicuously silent about the cost of war and reckless defense spending. War, the war industry and our equally reckless tax cuts are the source of our deficit problems.
Solutions to the Crisis
So what is to be done? We can wait for the private sector to come around, but as Obama has already admitted, that will take years. Assuming all other budgetary expenditures remain constant, doing nothing will only diminish tax revenues, increasing the federal deficit. The impact on state and municipal government budgets and services will be devastating, with massive layoffs to follow. No matter how nutty they may be, the Republicans will wipe the Democrats out long before the job market comes back (if it ever does under these conditions). Doing nothing will only make the problem worse, and guarantee political disaster for the Democrats.
We can throw chump change at the problem, by extending unemployment insurance benefits ad infinitum, but that wastes our human resources and talent and it doesn't solve the problem. Plus, there’s no telling what idle hands may do, not the least of which is putting the Republicans back in power.
A Second Stimulus Package - Second Verse, Same as the First
A second stimulus package, based on the 2009 model, will produce more or less the same effects as the last: big players will pocket the profits, states and the private sector will fudge the stats to produce the illusion of job creation, the cost will be tremendous and the tangible effects will be negligible. The potential for corruption will be high. Yes, state governments may survive another budgetary cycle without defaulting, but there are better ways to address their problems. Economic failure will be followed by political failure. The failure of the 2009 stimulus plan to do anything more than keep our privatized banking system and state governments (barely) solvent should mark the death of supply side economics as a legitimate economic philosophy.
Tax Credits for Job Creation
Tax credits – though less politically painful and certainly popular in the corporate world – will only diminish government revenue and will have little real impact on the job market. Certainly none that can be visibly seen. On the ground, corporations and their auditors will have a field day fudging the books to pocket the tax credit without adding any real jobs to the payroll. Any positive numbers produced through this scheme will be even more bogus than the numbers being trumpeted today about the stimulus package. Any politician foolish enough to try and sell those cocked-up numbers to the public will be punished at the polls. Tax credits are a 'weak tea' solution that not create new jobs. It will provide yet another windfall for corporations, while it drains government treasuries and fools no one.
Public-Private Partnerships
Public-private partnerships in targeted employment areas may produce more document-able results than the previously described strategies – since the state will have more of a direct hand in the matter – but such partnerships give the very people who created this mess new money and power to play their predictable games. It will require new institutions to be created and budgetary shenanigans, insider political deals and cost overruns will be a constant concern. On the upside, any new jobs created will be good political capital for the democrats, but as the ballooning costs start to wreck the national budget, squandering of public assets by the private sector will become cannon fodder for the Republicans (even if their buddies profited from the process). Such plans will produce short term political and employment gains and lead to long term fiscal and political disaster. If wildly successful, they become political institutions unto themselves, but without any real democratic checks and balances to contain their political power. Finally, the private sector cannot be trusted at this time to solve the problems they created.
The Block Grant Solution
Block grants to states will no doubt seem attractive to a Congress that wants to bring dollars back to their states and districts. But this is not a good solution either. Moving the money from one coffer into 50 or 50,000 coffers is a recipe for corruption, malfeasance and waste. There will simply be no way to control costs or monitor expenditures, a factor that local politicos and their friends have long known how to exploit. Further, it legitimates the longstanding Republican posture that the states should be responsible for domestic services. Thirty years of this budgetary behavior has left every state and municipality in this country is reeling from weight of their responsibilities. While the federal government may subsidize much of this work, the results are uneven, too many holes exist in the systems and – again – it is a recipe for corruption, malfeasance and waste. Though it may be politically attractive at the pettiest of levels, it will balloon costs and eventually produce a stream of scandals that will unravel the entire enterprise. It would be better for the federal government to take over those domestic services that it mandates and/or underwrites and pay for them directly out of the federal coffers. That would take pressure off state budgets and equalize the playing field for those who need those services. It would also probably save money.
Targeted Investments to Specific Industries
While targeting investments may have some use, the inability to calculate new job creation will rival all the other forms of supply-side investment. It will become a feeding frenzy for government contractors, political insiders, fly-by-night corporations and the other usual suspects. As is the case with tax credits, it is rife with opportunities to fudge the books. Improved oversight may curtail the most serious abuses, but when the political need to show results meets the corporate need to pocket the profits, we may see the same games we saw with the stimulus package: phony job creation claims. Secondly, real investment in new industries takes time to recoup and sometimes there are no profits or jobs to show for the efforts. After all, not every experiment works. The terrible state of the job market is too great, too desperate and the demand for jobs too immediate for such a speculative gamble. This proposal doesn't address the underlying problems that have gutted the job market to begin with and those new industries created may follow the same path as old industries; develop, expand, downsize, outsource. And in a decade or two, the fruits of the most successful investment may best be realized offshore. This proposal may have some value in the long run, but only as a supplement to more direct investment in jobs and within the context of restructuring the way business is done in this country. As a stand-alone solution it is also a 'weak tea' solution, with uncertain benefits and the potential for political blowback and/or fraudulent returns.
A New WPA Project is the Best Solution
That leaves us with Roosevelt’s WPA project. Unlike all other plans, its costs can be calculated and managed. Thus, the numbers touted by the politicians will be real. Yes, it will be more expensive upfront than tax credits, block grants, targeted investments or waiting for the market to come back. But it won't cost us as much as the last stimulus plan, its returns are guaranteed (X dollars pays for 1 worker for 1 year) and the labor can be dedicated to serve critical public needs. Unlike every other proposal, the results will be highly tangible and completely verifiable. And it offers the best way to prevent corruption, profit-taking and other forms of mischief. Every dollar spent would return to the economy -- through spending -- generating new economic activity and ultimately generate new tax revenues.
Such a strategy will reverse 30 years of supply-side, trickle-down economic logic by rebuilding our economy and society from the ground up. If you take into consideration the multiplying effects of seeding the economic base with wages -- particularly those communities that have been historically marginalized in the economy -- a WPA project can have a profound effect on local economies. It should generate a lot of economic activity and employment in the private sector as well.
The work done by those employed through this project can address real needs and neglected concerns and address many of the problems created by a rampant and unregulated private sector. Education, roads, bridges, hospitals, transportation, childcare, emergency response systems, the arts, etc. have all been employment sites for public works projects in years past. By using direct investment of government dollars to pay people to do what this country needs, the public will be able to see where their tax dollars went, who benefitted – family, friends, neighbors – and have at least a fighting chance of being able to calculate the cost and its benefits. If you've ever wondered why Franklin Delano Roosevelt was arguably the most successful President in US history, think for a while about the long-term impact of reversing supply-side socio-economics and building from the bottom up.
Unlike supply-side strategies such as tax credits, targeted investments, or the 2009 stimulus package, the private sector will not be able to steal the money and fake the returns. Unlike block grants, private-public partnerships, direct federal control over the project will avoid waste and corruption.
When Roosevelt’s WPA project was operational, the wages paid by the government to its workers were equal to – or better than – the wages offered by the private sector for similar work. By paying people living wages, a WPA project will throw down the gauntlet to the private sector by establishing a baseline for what a employee's labor is worth. This will help stem the downward trend of income in this country, challenging the private sector to compete with the government for the talents of our workers. It would offer whole communities – including historically excluded communities – a real chance at a better life and allow this country to get back on its feet. By addressing the economic foundation of historic inequality, such a project might advance the cause of civil rights and equal opportunity far better than the more symbolic strategies popularly chosen.
The good will produced by a visible, successful and properly managed WPA project will give President Obama and the Democrats the time to work out the more complicated and systemic problems in our economic system produced by 30 years of neglect, abuse and corruption. Yes, vigilance will be necessary to ensure that this system is not commandeered and corrupted by localized interests, or turned into patronage schemes for petty political benefit. Those projects or concerns undertaken should only those that serve the greater public good. And clear safeguards should be put in place to ensure the bureaucracy it requires remains manageable and reasonable. And very close attention must be paid to avoid needless scandals produced lest government contractors get their greedy hands in the cookie jar.
Real Political Courage is Needed
But to do this, the Democrats must stare down the fiscal conservatives and warmongers, brace themselves to get out of our bankrupting and futile wars, get control over the defense budget and ultimately reposition this country within a multipolar world where the United States is a part of a global socio-economic political system, not simply its gun-toting boss. Given our massive foreign debt and the failure of our current wars, it is all to easy for the world to force us to do this the hard way. Better we extract ourselves from the messes Bush and the Republicans got us into, make nice-nice with our neighbors and get our own house in order. And with the extra time and energy given to them by employing the unemployed in gainful and productive work, stave off a Republican return to power, and reform our social and economic system for the betterment of all.
Like it or not, the Democratic Party’s most lasting legacy in our history was the New Deal. The WPA project was one of its finest moments. 70+ years have not diminished its achievements and when people cast a vote for the Democratic Party, it is the memory of those efforts that they vote for. The crisis in the job market will be the defining issue in the next election. Its the Democrat's game to win or lose. I can see no better way to achieve all our progressive goals than to fully embrace a public works project and build from there to transform our society. Given the impact unemployment will have on the next election and Democratic Party dependence on those most affected by this crisis, I see no other way to sustain our gains or give Obama and Congress the time to achieve any other goals. Indeed, it’s the only way to stave off a Republican return to power, no matter how loopy or lunatic they may be.