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Blue Sky series: Michael Lind's plan

Michael_Lind_edited.jpgLate last week, I spoke with former SEIU president and current Georgetown fellow/fiscal commission member Andy Stern about hosting a series of pieces laying out different ideas to kick-start job creation. The idea here is not to see how many compromises can dance on the head of the congressional pin; it's to see what exactly different experts think needs to be done. In Ben Bernanke's memorable term: "blue sky thinking."

The first piece came, naturally enough, from Andy Stern; the second was from Dean Baker, the third from Mark Zandi and the fourth from Heather Boushey. In the coming days, there'll also be pieces from Rep. Paul Ryan, Sonecon's Robert Shapiro, the Peter G. Peterson Foundation's David Walker and others. Today's comes from Michael Lind.

Demand-Side Job Creation

Michael Lind
Policy Director of the Economic Growth Program at the New America Foundation


What America urgently needs is a set of demand-side policies that can accomplish two objectives at the same time: putting people and resources back to work, and shifting labor and capital from the debt-inflated sectors of the collapsed bubble economy like housing and finance to new and more productive uses like health care and education.

America’s unemployment crisis results from a lack of demand. That means that supply-side measures to stimulate the economy, like cutting taxes on business to free resources for investment, are both unnecessary — business is holding enormous amounts of cash — and ineffective — business will not invest in the absence of profits driven by demand.

Of the three possible sources of aggregate demand — foreign markets for U.S. exports, high levels of domestic consumer spending, and large-scale public spending — only the last can be effective in the next few years. While the U.S. should seek to rebuild its tradable goods sector, the misguided reliance on an export-led recovery by the three next largest economies in the world, China, Japan and Germany, will make it difficult if not impossible for the U.S. to export its way to recovery by selling American goods to consumers in those and other nations. Another alternative, a domestic U.S. consumer-led recovery, is undesirable until Americans, who are now saving at high rates, succeed in paying down their mortgage and credit card debts. That prolonged and painful process of household deleveraging could take years, perhaps more than a decade, and until it is complete we should seek to avoid additional unsustainable consumer spending sprees.

The demand needed to drive a recovery must come, directly or indirectly, from the public sector. While compensating for the lack of private consumer or foreign export market demand, the public sector’s demand-side policies should also redress the misallocation of capital toward residential housing and the FIRE (Finance, Insurance, and Real Estate) sector. Many laid-off construction workers and real estate industry employees could be put back to work by a massive, multi-year program of investment in productive infrastructure and energy, paid for initially by tax-favored bonds like the highly successful Build America Bonds (BAB’s), complemented if possible by a new national infrastructure bank or system of economic development banks that can leverage private capital for public purposes.

But millions of unemployed or underemployed Americans would remain, even if an adequate infrastructure investment program were launched. Many of these victims of the Great Recession have limited skills and were employed in low-wage jobs in the luxury sectors like restaurants and retail that catered to the big spenders of the bubble economy. The goal of public policy should be to directly and indirectly provide jobs for many of these workers in service sector jobs that address the needs of mainstream Americans, like health care and education, rather than return them to dead-end menial service jobs where they will work again for the affluent.

One solution would be direct, permanent expansion of public sector employment in “quality of life” jobs like teaching, child care, public health care, and policing. This could include a significant build-out of the community college system to provide vocational training for those who do not need or want four-year residential college educations. Millions of new public sector jobs should be created by state and local governments with federal funding, provided first on an emergency basis and then by permanent revenue-sharing using the proceeds of a national value added tax (VAT) that exempts basic, necessary goods. It would be difficult for demagogues to turn public opinion against an increase in the number of moderately-paid front-line public servants like police officers and public clinic health care workers.

In addition to funding direct job creation at the state and local level, the federal government should also fund indirect job creation, by providing state and local governments the resources that they need to design service voucher programs. Many democracies in Europe and Asia have had successful experiences with vouchers provided to individuals for in-home services. My colleague at the New America Foundation Lauren Damme and I have proposed a Dignity Voucher program along these lines. Qualified retirees would receive vouchers entitling them to a certain number of hours of in-home help each week. State and local governments, using federal funds, would pay the difference between the modest fee paid by the elderly customer and the living wage paid by the carefully-supervised company that employs the service worker.

The Dignity Voucher program could help meet the unmet needs of millions of elderly Americans, even as it puts millions of the unemployed back to work. In addition to providing a timely demand-side stimulus, service voucher programs like the one we propose could help reduce the costs of health care and eldercare as the number of Americans over 65 doubles by 2050, because in-home care is less expensive than treatment in residential facilities. Unlike conservative proposals to “voucherize” Medicare, eldercare service vouchers would supplement, not replace, the Medicare system. The service voucher model could be adapted to subsidize demand for other necessary services for middle- and low-income Americans, including child care and tutoring.

The potential for expansion of employment in these sectors is impressive. According to the latest data from the Bureau of Labor Statistics, in 2008 there were 2.6 million registered nurses, 753,600 licensed nurses of other kinds, 1.7 million home health care and personal aides, and 1.3 million child care workers. Doubling these numbers might create at least 5 million jobs for people who would pay taxes and spend money on consumption and housing. Combined with new jobs in infrastructure, this demand-side service sector policy could help a significant portion of the fifteen million unemployed and the eight million underemployed.

By focusing both direct and indirect subsidies on health care and education, where most of the private sector job creation has occurred in the last decade, and where rapid growth is expected in the future, demand-side public policy would be going with the flow of our evolving economy, instead of against it. In all industrial societies, rising productivity reduces the amount of income spent on food, shelter, clothing and appliances, freeing income which people tend to use to purchase quality of life goods like health care and new skills. In the United States, however, most of the gains from productivity growth in the last generation have gone to the richest Americans, instead of being shared in the form of higher pay-checks. Without crowding out private investment in these rapidly growing fields, public subsidies, delivered through both public employees and publicly-subsidized private workers, can provide access to these quality of life services for Americans who have not received their fair share of the gains of national growth.

A program of public demand-led growth, uniting public infrastructure investment with federal subsidies for state and local public job creation and service voucher programs, will be difficult to enact on the necessary scale, in the face of public anger that has been misdirected to focus on the wrong targets. Even so, a demand-side program of this kind and on this scale is the only feasible alternative to years of low growth and mass unemployment, or, even worse, another asset-inflation bubble that produces a temporary illusion of prosperity followed by an even greater crash.

By Ezra Klein  |  September 15, 2010; 3:59 PM ET
Categories:  Blue sky series  
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Comments

This Blue Sky series is like amateur night at the comedy club, only much funnier.

Posted by: ostap666 | September 15, 2010 5:08 PM | Report abuse

I'd be interested if you could interview the banking analyst Meredith Whitney on what she would do. I've found her analysis of the housing market and credit issues credible, along with her warnings of unintended consequences of the recent financial legislation.

http://www.ft.com/cms/s/0/11344d06-befb-11dd-ae63-0000779fd18c.html

http://www.meredithwhitneyllc.com/op_ed/wsj_The_Small_Business_Credit%20Crunch.pdf

http://www.meredithwhitneyllc.com/op_ed/WSJ_Credit%20Cards%20Are%20the%20Next%20Credit%20Crunch.pdf

Posted by: jnc4p | September 15, 2010 5:25 PM | Report abuse

"Dignity Voucher program"

A handout labeled a 'Dignity Voucher'. But only for qualified applicants.

By the way, how depressing would it be to not qualify for a dignity voucher?

"According to the latest data from the Bureau of Labor Statistics, in 2008 there were 2.6 million registered nurses, 753,600 licensed nurses of other kinds, 1.7 million home health care and personal aides, and 1.3 million child care workers. Doubling these numbers might create at least 5 million jobs for people who would pay taxes and spend money on consumption and housing"

Why not triple these numbers? Quadruple them? That would create even more jobs!

Do we need another 2.6 million nurses? Will they be unemployed as soon as this stimulus plan ends - with worthless credentials to boot, as they were 'misallocated' into the healthcare sector? Or will government dollars permanently keep them there? I wonder which direction this sends the health care cost curve...

"Millions of new public sector jobs should be created by state and local governments with federal funding, provided first on an emergency basis and then by permanent revenue-sharing using the proceeds of a national value added tax (VAT) that exempts basic, necessary goods"

Great, so the public jobs are permanent.

Instead of stabilizing spending (at levels that are already too high) and use the tax to help our long term budget situation, the tax is blown immediately on new spending. Of course, as should always be remembered, spending itself is the tax.

"By focusing both direct and indirect subsidies on health care and education, where most of the private sector job creation has occurred in the last decade, and where rapid growth is expected in the future, demand-side public policy would be going with the flow of our evolving economy, instead of against it."

Maybe then it will become clear why these two sectors have uncontrollable cost growth...

Posted by: justin84 | September 15, 2010 5:38 PM | Report abuse

The analysis of the issues is compelling (the need for publicly funded demand while people deleverage), and I think it's true: once you achieve a certain level of comfort, you spend your extra dollars on services, experiences, etc. However these proposals don't address the systemic loss of real income among the middle class; they don't address the rampant inflation of higher education and health care; and they don't address the need to move away from fossil fuels.

Make post-secondary education more affordable, make health care more affordable, and address climate change, and your coalition will be much broader.

Posted by: Lonepine | September 16, 2010 1:18 AM | Report abuse

--"[M]ore productive uses like health care and education."--

Nice picture of Lind. Is that from college?

Lind isn't serious, is he? Health care and education aren't "productive" sides of an economy. They are costs. Lind's premise is complete nonsense.

Posted by: msoja | September 16, 2010 1:38 AM | Report abuse

"they don't address the rampant inflation of higher education and health care"

Lonepine,

Health care inflation is addressed, although in the wrong direction. You don't think those nurses will be working for free, do you?

Posted by: justin84 | September 16, 2010 9:45 AM | Report abuse

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