18 Million Jobs by 2012
One argument against taking bold measures now is that, mass unemployment aside, the official indicators tell us that the recession is over. The economy did grow at a robust 5.7 percent over the past quarter, though that may be only a short-term blip, driven by businesses restocking their depleted inventories. But let's assume that a recovery is indeed under way at more or less the normal rate of progress relative to recent recessions. In fact, under such a "normal" scenario, unemployment would not likely fall to around 5 percent until early 2017. We would not likely hit 4 percent unemployment until mid- 2018, assuming the recovery could be kept going for another eight years.
Even with a successful coordination of large-scale expansions of private and public spending, is it realistic to expect that the economy, which has been so trampled down for the past three years, could possibly create 18 million jobs over the next three years? It is an ambitious but realistic goal. This is basically the rate at which employment grew under Gerald Ford and Jimmy Carter coming out of the 1974-75 recession. The Carter years are widely derided through the lens of his 1979 "malaise" speech. Yet the first three years under Carter generated the fastest expansion of job opportunities of any comparable period since, including any three-year stretch under Reagan or Clinton.
The Carter presidency, of course, ended disastrously with the severe 1980 recession. But this was because OPEC and the oil companies doubled oil prices between 1979 and 1980. Even more important, Wall Street insisted at the time that Carter appoint Paul Volcker as chair of the Federal Reserve to stop the inflation that resulted from the oil price shock. Volcker immediately raised short-term interest rates, pushing them as high as 17 percent by April 1980. This brought unemployment up to 7.5 percent in time for Reagan's landslide victory over Carter in November 1980. (It is ironic that among Obama's top tier of economic advisers, the same Paul Volcker is taking the hardest line against Wall Street excesses.)
Of course, we need to control inflation, especially when it results from oil price jumps. But we can do this by getting serious about energy conservation and new renewable energy sources, as well as being prepared to release our strategic oil reserves as needed, to force oil prices back down amid a crisis. Pushing unemployment down to around 4 percent will also provoke inflation fears because it is likely to bring wage increases, as workers' bargaining power improves. But rising wages do not cause inflation on their own, as long as wage increases are in line with how much workers produce on the job. Also recall that the average wage today is about 10 percent below its peak level of 1972, even though average worker productivity has risen by about 90 percent since the early 1970s. In short, now is the time to focus on creating 18 million decent jobs and not to remain fixated--as we were from Volcker's 1979 appointment until the 2008 financial collapse--on fears of moderately rising inflation.
Reducing the Pain
Mass unemployment creates widespread human suffering. Minimizing this suffering has to be the first priority in fighting the recession. Helping people in need also contributes to countering a downward recessionary spiral and thus helps prevent another collapse. In general, the Obama administration has done reasonably well on this front, but the demands are great. More than 3 million homeowners have lost their homes through foreclosures or related bank actions since the crisis began, and the foreclosure rate is running at 170,000 per month, near the peak for the crisis. The African-American community, targeted as a large potential market for subprime mortgages during the bubble years, is suffering disproportionately from foreclosures. Clearly, in this case, the administration's efforts have accomplished next to nothing. Economist Dean Baker has proposed the most effective plan to keep people in their homes, which is to allow them to stay in their homes as renters, paying market rental rates. The government also needs to continue extending unemployment benefits and increase support for food stamps to compensate unemployed workers and the poor for their income losses.
In the same vein are work-sharing programs that extend unemployment compensation to workers who accept reduced hours that then enable their companies to avoid outright layoffs. Indeed, work-sharing can be even more effective and fairer than traditional unemployment insurance, since it spreads the reductions in work hours across a wide group of workers rather than concentrating the effects of the recession on the minority of workers who become completely jobless. Work-sharing programs have long been a major part of the social safety net in Western Europe. Over this recession, Germany has been especially aggressive in extending these benefits to prevent rising unemployment.
Such programs already exist on a modest scale in seventeen states. Senator Jack Reed of Rhode Island has introduced a bill that would extend these programs and provide start-up funds to create measures in the remaining states. While this would be a very favorable development, we also need to recognize that work-sharing programs, similar to anti-foreclosure measures, unemployment insurance and food stamps, do not inject any new major source of spending into the economy. They will help firm up the economy's floor. But even here they will need additional support, especially given the budgetary crisis faced by state and local governments around the country.