18 Million Jobs by 2012
Unemployment in the United States stands officially at 9.7 percent. This represents 14.8 million people out of work. By a broader official measure that includes people employed fewer hours than they would like and those discouraged from looking for work, the unemployment rate is 16.5 percent, or about 25 million people in a total labor force of about 153 million. We have not seen comparable unemployment rates since 1983, twenty-seven years ago, and before that, not since the 1930s Depression.
The job-creation proposals coming from the Obama administration, in the president's January 27 State of the Union address and elsewhere, generally point in the right direction, with more spending for clean energy, infrastructure and support for small businesses. These proposals follow from Obama's February 2009 economic recovery program, which injected $787 billion in new spending or tax relief into the economy over two years. However, just as last February's stimulus program was too small to counteract the evaporation of $16 trillion in household wealth resulting from the financial collapse, the scope of Obama's current proposals is nowhere near large enough for the situation today.
For example, Obama has proposed $33 billion in new tax credits for small businesses. By contrast, private borrowing by businesses over the previous six months was down by $1.5 trillion relative to 2007, with the largest proportional cutbacks coming from small businesses. What's more, Obama's call to freeze discretionary federal spending in nonmilitary areas is dangerously misguided. The fiscal deficits of 2009 and 2010--at between $1.4 trillion and $1.6 trillion, or around 10 percent of GDP--are indeed very large. But the freeze obscures what Obama and his advisers clearly know--that deficit spending is part of the solution to our economic predicament and will remain so until we see millions of people getting hired into decent jobs.
Here is what we need: a commitment from the Obama administration to create 18 million new jobs over the remaining three years of the presidential term. That would mean an average increase of about 500,000 jobs per month, or a bit more than 4 percent growth in job creation over the next three years. This can be done by combining two broad types of initiatives: measures to buttress the economy's floor and thereby prevent another 2008-type collapse, and measures to inject job-generating investments into the economy. If such initiatives are successful, the official unemployment rate will stand at around 4 percent when Obama runs for re-election in November 2012.
Is This Realistic?
The central features of this plan can remain within the framework of proposals already established by the administration. The key is getting the scale large enough. The only way this can happen is by combining the positive energies of the public and private sectors. This public-private approach is not only practically necessary; it will also counteract right-wing claims that the government is seizing control of the economy in the name of job creation. Most of the financial heft will have to come from banks and other private financial institutions. The banks alone are hoarding cash reserves totaling about $850 billion in their accounts at the Federal Reserve. Most of that money needs to be channeled into job-generating investments. For this to happen, interest rates and the risks for lending to small businesses need to fall substantially.
But it will be necessary for the government to keep injecting spending into the economy, which will add to the deficit. Scare stories aside, the fiscal deficit is not dangerously large. The interest rates the government is paying on its borrowing--as opposed to the rates that businesses have to pay on much riskier loans--remain historically low, in the range of 2 to 3 percent. This is because the world's financial magicians of just a few years ago have chosen to protect their remaining wealth by buying up the safest possible assets they can find, which are US Treasury bonds. When Ronald Reagan was running up record-breaking deficits in the early 1980s, the interest rates on the bonds were around 13 percent.
This huge gap in interest rates between now and the Reagan era will save the Treasury about $175 billion per year going forward. Also remember that falling unemployment rates reduce the deficit on their own, with each 1 percent drop generating about $90 billion in government revenues or reduced spending obligations. This is because when people are newly employed, they can support themselves and pay more taxes. We also need workers earning decent wages. Even if we didn't care about the ever-widening inequalities of wages, incomes and wealth, we would still need working people to have enough money in their pockets to boost sagging consumer markets. Conversely, when unemployment rises, the government is faced with huge extra spending burdens through unemployment insurance, food stamps, Medicaid and related social safety net commitments. The fiscal deficit could probably be eliminated altogether if unemployment could be driven down to around 4 percent, even without spending cuts or increases in tax rates. Finally, we can extract about $300 billion in savings and new revenues by ending the wars in Iraq and Afghanistan and by establishing a modest tax on speculative Wall Street trading.