[Respite]
[I'm out of town and beyond blog access until next Thursday. The world will go on without my commentary.]
Week of January 4, 2009 - January 10, 2009
The Stimulus: How to Create Jobs Without Them All Going to Skilled Professionals and White Male Construction Workers
The stimulus plan will create jobs repairing and upgrading the nation's roads, bridges, ports, levees, water and sewage system, public-transit systems, electricity grid, and schools. And it will kick-start alternative, non-fossil based sources of energy (wind, solar, geothermal, and so on); new health-care information systems; and universal broadband Internet access.
It's a two-fer: lots of new jobs, and investments in the nation's future productivity.
But if there aren't enough skilled professionals to do the jobs involving new technologies, the stimulus will just increase the wages of the professionals who already have the right skills rather than generate many new jobs in these fields. And if construction jobs go mainly to white males who already dominate the construction trades, many people who need jobs the most -- women, minorities, and the poor and long-term unemployed -- will be shut out.
What to do? There's no easy solution to either dilemma. But there's no reason to think about "green jobs" as simply high-tech. Many low-income and low-skilled workers -- women as well as men -- could be put directly to work providing homes and businesses with more efficient and renewable heating, lighting, cooling, and refrigeration systems; installing solar panels and efficient photovoltaic systems; rehabilitating and renovating old properties, and improving recycling systems. "Green Jobs Corps" teams could be trained to evaluate and advise homeowners and businesses on these and other means of conserving energy.
People can be trained relatively quickly for these sorts of jobs, as well as many infrastructure j0bs generated by the stimulus -- installing new pipes for water and sewage systems, repairing and upgrading equipment, basic construction -- but contractors have to be nudged both to provide the training and to do the hiring.
I'd suggest that all contracts entered into with stimulus funds require contractors to provide at least 20 percent of jobs to the long-term unemployed and to people withincomes at or below 200 percent of the federal poverty level. And at least 2 percent of project funds should be allocated to such training. In addition, advantage should be taken of buildings trades apprenticeships -- wich must be fully available to women and minorities.
It's a two-fer: lots of new jobs, and investments in the nation's future productivity.
But if there aren't enough skilled professionals to do the jobs involving new technologies, the stimulus will just increase the wages of the professionals who already have the right skills rather than generate many new jobs in these fields. And if construction jobs go mainly to white males who already dominate the construction trades, many people who need jobs the most -- women, minorities, and the poor and long-term unemployed -- will be shut out.
What to do? There's no easy solution to either dilemma. But there's no reason to think about "green jobs" as simply high-tech. Many low-income and low-skilled workers -- women as well as men -- could be put directly to work providing homes and businesses with more efficient and renewable heating, lighting, cooling, and refrigeration systems; installing solar panels and efficient photovoltaic systems; rehabilitating and renovating old properties, and improving recycling systems. "Green Jobs Corps" teams could be trained to evaluate and advise homeowners and businesses on these and other means of conserving energy.
People can be trained relatively quickly for these sorts of jobs, as well as many infrastructure j0bs generated by the stimulus -- installing new pipes for water and sewage systems, repairing and upgrading equipment, basic construction -- but contractors have to be nudged both to provide the training and to do the hiring.
I'd suggest that all contracts entered into with stimulus funds require contractors to provide at least 20 percent of jobs to the long-term unemployed and to people withincomes at or below 200 percent of the federal poverty level. And at least 2 percent of project funds should be allocated to such training. In addition, advantage should be taken of buildings trades apprenticeships -- wich must be fully available to women and minorities.
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Stimulus Plan: The Need and the Size
The core problem we face is not access to capital. The Treasury has already flooded Wall Street and the banking system with money, committing nearly $350 billion; the Federal Reserve Board has exchanged Treasury bills for some $2.2 trillion of troubled assets; other agencies, such as the FDIC, have guaranteed trillions more. But there has been no appreciable result. Banks will not lend because they fear borrowers will not repay; businesses will not borrow because they do not have adequate markets for their goods and services; individuals cannot and will not borrow because they do not have enough reliable income to do so.
The core problem lies on the demand side. American consumers, whose purchases represent 70 percent of the economy, do not have the purchasing power to maintain overall demand for American goods and services. Businesses will not invest unless consumers are able to buy. Exports cannot possibly fill the gap. Inadequate demand is forcing the private sector to lay off large numbers of workers, which, in turn, is further reducing the buying power of consumers. In 2008, 1.9 million jobs vanished -- the biggest drop in non-farm payrolls in thirty-four years. We are caught in a vicious cycle.
As the buyer of last resort, the federal government must respond if that cycle is to be reversed. In my judgment, this will require a stimulus of about 6 and a half percent of gross domestic product, or a total of some $900 billion, spread over two years. That’s my estimate for the shortfall in private demand. But the federal government should stand ready to spend larger sums if necessary to get the economy back on track toward full capacity. The danger is not that the government will do too much; the danger is that it will do too little, too late.
Without such action, I estimate that another 3 million jobs will be lost in 2009, unemployment will rise to 10 percent of the workforce by the end of this year, and under-employment – including people working part-time who would rather be working full time, and those too discouraged even to look for work – will reach 15 percent. Without federal action, next year could be even worse.
People often ask where the money for the stimulus will come from. The answer is the same places from which the Federal Reserve and the Treasury have financed their far larger attempt to rescue the financial system. The bulk of the money will have to be borrowed from abroad, largely from China and Japan. This is less than ideal, but failure to adequately stimulate the U.S. economy, resulting in years of economic stagnation, would be far worse – both for us and for the rest of the world. Moreover, our current ratio of debt to gross domestic product is still below 50 percent, not substantially higher than that of most other industrialized nations. In 1946, our debt to GDP ratio was over 100 percent. Most of the declines in our debt-GDP ratio over the years have been achieved through higher levels of economic growth rather than through less debt. The sooner we return to growth, the better able we will be to reduce this ratio.
No stimulus can fully succeed if millions of American families continue to lose their homes through foreclosure. Housing markets will continue to decline, people cannot move to take new jobs, and industries such as construction and retail services will continue to shed jobs.
Mortgage mitigation efforts to date have failed largely because investors won’t agree to take their losses on bad investments. In my view, the answer is to enable families to write down their home mortgages in bankruptcy – just the way businesses can do with commercial property and people can do with vacation homes and investment properties. This change in bankruptcy law should be part of the stimulus plan.
Overall, the federal government’s responsibility for restoring aggregate demand is at least as great – arguably, far greater – than its responsibility for rescuing the financial system and helping U.S. automakers restructure. Without adequate demand, credit markets will continue to be frozen and major American industries will languish. Yet there is no ready formula for how the federal government should proceed because we have not been here before.
This largest and most serious economic downturn in more than sixty years will require both a willingness to try new policies and to change course if those policies appear to be ineffective relative to their costs. The danger is not that the federal government will do too much but, rather, that it will do too little.
Whatever is contained in the stimulus plan must also be clear and transparent, so that the public can know and understand what is being tried. Finally, although the ferocity of the downturn necessitates quick action, policy makers and the public will need to be reasonably patient. Even with the best of policies, a substantial and sustainable turnaround cannot be expected any time soon.
The core problem lies on the demand side. American consumers, whose purchases represent 70 percent of the economy, do not have the purchasing power to maintain overall demand for American goods and services. Businesses will not invest unless consumers are able to buy. Exports cannot possibly fill the gap. Inadequate demand is forcing the private sector to lay off large numbers of workers, which, in turn, is further reducing the buying power of consumers. In 2008, 1.9 million jobs vanished -- the biggest drop in non-farm payrolls in thirty-four years. We are caught in a vicious cycle.
As the buyer of last resort, the federal government must respond if that cycle is to be reversed. In my judgment, this will require a stimulus of about 6 and a half percent of gross domestic product, or a total of some $900 billion, spread over two years. That’s my estimate for the shortfall in private demand. But the federal government should stand ready to spend larger sums if necessary to get the economy back on track toward full capacity. The danger is not that the government will do too much; the danger is that it will do too little, too late.
Without such action, I estimate that another 3 million jobs will be lost in 2009, unemployment will rise to 10 percent of the workforce by the end of this year, and under-employment – including people working part-time who would rather be working full time, and those too discouraged even to look for work – will reach 15 percent. Without federal action, next year could be even worse.
People often ask where the money for the stimulus will come from. The answer is the same places from which the Federal Reserve and the Treasury have financed their far larger attempt to rescue the financial system. The bulk of the money will have to be borrowed from abroad, largely from China and Japan. This is less than ideal, but failure to adequately stimulate the U.S. economy, resulting in years of economic stagnation, would be far worse – both for us and for the rest of the world. Moreover, our current ratio of debt to gross domestic product is still below 50 percent, not substantially higher than that of most other industrialized nations. In 1946, our debt to GDP ratio was over 100 percent. Most of the declines in our debt-GDP ratio over the years have been achieved through higher levels of economic growth rather than through less debt. The sooner we return to growth, the better able we will be to reduce this ratio.
No stimulus can fully succeed if millions of American families continue to lose their homes through foreclosure. Housing markets will continue to decline, people cannot move to take new jobs, and industries such as construction and retail services will continue to shed jobs.
Mortgage mitigation efforts to date have failed largely because investors won’t agree to take their losses on bad investments. In my view, the answer is to enable families to write down their home mortgages in bankruptcy – just the way businesses can do with commercial property and people can do with vacation homes and investment properties. This change in bankruptcy law should be part of the stimulus plan.
Overall, the federal government’s responsibility for restoring aggregate demand is at least as great – arguably, far greater – than its responsibility for rescuing the financial system and helping U.S. automakers restructure. Without adequate demand, credit markets will continue to be frozen and major American industries will languish. Yet there is no ready formula for how the federal government should proceed because we have not been here before.
This largest and most serious economic downturn in more than sixty years will require both a willingness to try new policies and to change course if those policies appear to be ineffective relative to their costs. The danger is not that the federal government will do too much but, rather, that it will do too little.
Whatever is contained in the stimulus plan must also be clear and transparent, so that the public can know and understand what is being tried. Finally, although the ferocity of the downturn necessitates quick action, policy makers and the public will need to be reasonably patient. Even with the best of policies, a substantial and sustainable turnaround cannot be expected any time soon.
Stimulate the Economy by Mending Our Safety Nets
Lots of talk this week about the proposed stimulus. One high priority
ought to be the most vulnerable members of our society. The safety net
created in the 1930s to protect Americans from extreme poverty is in
tatters. Now that we¹re in the worst downturn since the Depression, that
safety net needs mending. This should be a key part of any stimulus plan.
Unemployment insurance, for example, was created in 1935, when most people
who lost jobs had held those full time positions for some years. But most
people who are losing jobs now have not been in them all that long.
Typically, the last ones hired are the first fired. And many job losers
have only worked part time.
Either way, they don¹t qualify for unemployment benefits. In fact, fewer
than 40 percent of people now losing their jobs qualify. So a necessary
step toward mending our safety net is to get unemployment benefits to
everyone who loses a job. And if it's a part-time job, partial benefits.
