In the midst of the global economic recession of the late 1970s and early 1980s, James Tobin (Nobel Prize Winner in 1981) faced the problem of continued high unemployment (over 7%) at a time when Reagan's supporters were already claiming that the country was out of recession (Challenge Magazine, May-June issue, 1986, pages 4-12). Tobin was critical, not only because unemployment seemed to have hit a plateau, but because he was concerned with rising international competition, off-shoring of manufacturing and off-shoring of investment. Dropping rates of research and development in the US and rising rates abroad gave him pause. This was especially true due to the persistence of low capacity utilization through the early and mid 1980s.
Tobin pointed out that high employment rates correlated with high consumption and investment and high unemployment with the reverse. He addressed claims that Herb Stein, an economist who defended the Reagan administration's policies, that the natural rate of unemployment should be higher than 5% and that rates above 7% were likely to become "natural" in modern, fast changing economies. But for Tobin, there was a need to see unemployment in the context of world economic stress, as a threat to not only recovery but progress, innovation and adaptation. He called for a return to the Employment Act of 1946 when America was challenged by the demobilization of 2 million men and women under arms and a massive reduction in demand for military manufacturing while the transition to consumer production was hampered by low wages paid to service men and women and the transition to civilian life.
Tobin showed that the overwhelming policy of US administrations when faced with recessions was to moderate economic policy to keep inflation down. He noted that high unemployment is not only a privation for those experiencing it, but it is a waste of productive resources: each point by which unemployment is lowered yields gains of from 2 to 3% of GNP in the Post-WWII period in his estimation. According to Bureau of Labor Statistics, US small business creation is in long-term decline. In 2010 it reached a historic low (Reuters, 2012 @ http://www.reuters.com/...).
A greater loss was also a concern to Tobin, that of human skills and training. Tobin noted that the recession had fallen hardest on the young, those entering the workforce, as is true today, as well as on the older workers. Recessions tended to freeze people in jobs, putting off career changes for fear of loss of employment and long-term unemployment. The discouragement of younger workers, and loss of successful work experience was a problem, in what he considered then, the rapidly changing job market in the world.. This same problem was recently discussed by Martin Wolf (2012) using data from a paper by Edward Lazear presented at the 2012 Jackson Hole symposium, “The United States Labour Market: Status Quo or a New Normal.”
Then, as today, Tobin found the fetish of banking authorities and politicians of stabilizing the banking industry and ignoring unemployment and education as wrongheaded. Tobin also attacked the Reagan budgets that enormously added to defense spending but ignored civilian investment in infrastructure, research and development and education while at the same time cutting taxes that created huge deficits made worse by Gramm-Rudman which simply added to deficit spending. Reagan's tax policies of 1980 and 1982 were supposed to result in private saving and investment, but only added to government debt. These are the same policies as the Bush tax cuts and those proposed by Romney-Ryan. So when Obama says the Republicans are offering more of the failed policies of the past, he is correct.