The Jobs Solution | The Nation


The Jobs Solution

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What the Heck Happened?

About the Author

Donald W. Riegle Jr.
Former Michigan Senator Donald W. Riegle Jr., a member of the Smart Globalization Initiative and chair of government...
Leo Hindery Jr.
Leo Hindery Jr., chair of the Smart Globalization Initiative at the New America Foundation and an investor in media...

Also by the Author

The solution to the jobs crisis depends on manufacturing and trade policy reform.

History teaches us that no nation can simply borrow its way to sustained prosperity. Nor does long-term prosperity ever come from disconnecting workers' wages from their productivity, or from a government's refusal to protect the right of workers to organize, to achieve decent working conditions and to receive a fair share of their productivity gains.

Yet this is exactly what has happened on and off for the past twenty-five years, as successive administrations gutted the progressive individual income tax in order to benefit high-income Americans; let most productivity gains go to those at the highest income levels, again through preferential tax policies; and ceased in any meaningful way to protect workers' rights.

As a result, our nation is saddled with an economy that for several decades has bounced from one credit-induced bubble to another. Income inequality is at its highest level since 1928; median wages have stagnated for more than a decade; and, significantly, our once vital manufacturing sector is swamped by our largely service-based economy, which moves incomes around the country but does little to improve our balance of trade.

Trade unions, which fostered and heavily sustained both the middle class and the balanced capitalist system in the United States, now represent only 7.6 percent of private-sector employees, down from more than 20 percent as recently as the early '80s. And instead of seeing gains in real wages earned through higher worker productivity, living standards for all but the wealthiest Americans have been artificially sustained for years by outsize mortgages, home equity loans and credit card debt, and by the growth in two-worker family incomes.

This long history of decoupling wages from productivity has also reduced individual savings rates and the aggregate savings needed for capital investment. Many employers have shrunk real wages and benefits while substantially dismantling the employer-based pension system. And in the public sector, excessive tax cuts for the wealthy have left our federal and state governments without the revenues needed to properly fund public education, healthcare and vital infrastructure investments.

And Don't Forget Trade

We also need to address immediately the decades of misguided trade policies that led to the transfer of millions of US workers from export industries into less productive and often lower-paying service jobs. In the 1980s, US-based global corporations, with the complicity of the executive and legislative branches, began to see their overseas operations not just as sources of raw materials but also as cheap production sites, invariably with much weaker environmental standards and fewer rights and protections for workers.

In January 1994 the North American Free Trade Agreement became the first legal embodiment of this major shift, followed a year later by the development of the World Trade Organization and then by the United States granting most-favored-nation status to China in 2000--in each case without securing nearly enough reciprocity and enforcement rights.

These misguided trade policies, combined with other countries' much less expansionary macroeconomic policies, triggered the most massive change in trade numbers in the history of any nation. America's willingness to pursue very expansionary monetary and fiscal policies, by contrast, has allowed many of these countries a "free ride" on our strong consumer demand. The massive $4.7 trillion goods-and-services trade deficit accumulated over just the eight years of the Bush administration--including a $3.6 trillion deficit in the extremely important manufactured goods category--made the US economy about $1.5 trillion smaller than it otherwise would have been. And without any meaningful reciprocal jobs creation here, we lost 4.5 million manufacturing and more than 2 million service jobs, most of them unfairly.

America's cumulative trade deficit since 1980 is an almost unbelievable $7.2 trillion. Those who scoff at the urgent nature of this problem have no real answers when asked how and when America will ever be able to pay off this obligation. And make no mistake, pay it off we must, just as we have to pay off this nearly $13 trillion that is soon to be the aggregate federal debt.

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