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The Blue Sky series: Dean Baker's plan to create 9 million jobs

deanbakerside.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. In the coming days, there'll also be pieces from Moody's Mark Zandi, CAP's Heather Boushey, the Peter G. Peterson Foundation's David Walker and others. Today's, however, comes from Dean Baker.

Will Politicians Pay a Price for Leaving 15 Million People Unemployed?

Dean Baker
Co-Director, Center for Economic and Policy Research

Andy Stern has put forward a serious proposal for getting the economy moving forward and putting people back to work. We should demand that our politicians take up the Stern challenge to “call or raise me.”

So, how does my scorecard look? I’ll take my top two items from Stern, then throw in $100 billion a year for infrastructure spending, and $15 billion a year for home retrofits.

Job Sharing $ 54 billion 2.4 million jobs
Youth Employment $ 46.5 billion 3.1 million jobs
Infrastructure $ 100 billion 1.6 million jobs
Energy Retrofits $15 billion 0.5 million jobs
Fed Inflation Target 1.4 million jobs

Total $215.5 billion 9.0 million jobs

It was not a natural disaster like a hurricane or an earthquake that led to 25 million people being unemployed or underemployed. This disaster was an entirely preventable result of incredibly inept economic management. In other words, there is mass suffering across the country because the people who were charged with running the economy did not have a clue as to what they were doing.

This apparently continues to be the case. The proposals that Stern has put forward are entirely reasonable routes for creating jobs and boosting the economy. My favorite is work sharing just because it is so simple, obvious and quick.

As Stern points out, this really should not be a big partisan issue. Both Republicans and Democrats recognize the need for unemployment insurance in a downturn. What is wrong with having the government partially offset the loss of pay from a 20 percent reduction in work hours rather than demanding that someone be 100 percent unemployed before they can collect unemployment benefits?

This keeps people on the job so that they remain part of the workforce and will continually upgrade their skills as needed. This avoids the often devastating effects of long-term unemployment. Work sharing has been pursued aggressively by the conservative government in Germany. Its unemployment rate is now lower than it was at the start of the downturn even though its economy suffered a sharper drop in GDP than the United States.

The jobs program suggested by Stern is also just plain commonsense. There are places like Detroit, where the youth unemployment rate is well over 50 percent. Public sector jobs, like those created in the New Deal, can give these kids a chance in life that they would not otherwise have.

The reason that politicians have shied away from this route is that they are worried that Fox will find two kids drinking beer in the park while they are on the payroll, and the video will go viral on the Internet. We have to tell the politicians that they will just have to live with the bad PR if it means giving millions of young people a chance in life. A little spine can go a long way.

I like Stern’s infrastructure plan, but I’m not sure that we can do as much as quickly as he, and I, would like. The country has huge infrastructure needs. We have to modernize our transportation system, our electric grid, and our water and sanitation system. The Obama administration began some of this with the stimulus package last year, but much more needs to be done.

Modernizing our infrastructure could easily take $2 trillion over the next decade. However, we probably could not usefully boost spending by more than $100 billion over the next year.

Another area where we can surely do more is retrofitting homes to make them more energy efficient. Here also the Obama administration has gotten the ball rolling with its stimulus, but we need to ramp up the scale by at least an order of magnitude. Suppose we weatherized 10 million homes a year for two years at an average cost of $3,000 each. If the government picked up half of the expense, this comes to $15 billion a year.

There is one other item that should be on everyone’s list, the Fed has to take more aggressive action to combat the downturn. After all, the law requires the Fed to pursue full employment and 9.6 percent unemployment is a long way from anyone’s idea of full employment.

The best course of action here is a policy endorsed by Federal Reserve Chairman Ben Bernanke for Japan back when he was still a professor at Princeton. He suggested that Japan deliberately target a higher rate of inflation. He proposed an inflation target in the 3-4 percent range.

This should encourage firms to invest since they will know that the items their investment generates will be selling at prices that are considerably higher in the near future. Moderate inflation will also alleviate the debt burden of households as their wages rise more or less in step with inflation, while mortgages and other debt remain fixed in value.

More aggressive action by the Fed can also ensure that the stimulus does not increase the country’s future interest burden. The reason is simple. If the Fed holds the bonds used to finance a stimulus, then the interest on these bonds is paid to the Fed, which in turns refunds it to the Treasury. In normal times this could lead to inflation, but instead of being feared, a higher rate of inflation would actually boost the economy right now.

The last one is an especially rough calculation. It assumes that the higher inflation rate will increase employment by 1 percent.

Of course there is considerable guess work in all these numbers, but the certainty of high unemployment is far worse than the risks of action. Those in charge of economic policy gave us a horrible disaster because of their failure to combat the housing bubble before it grew large enough to wreck the economy. The public must insist that they not now allow the economy to remain locked in this near depression for the indefinite future simply because they are afraid to take any actions. We should make them at least as afraid not to take action.

By Ezra Klein  |  September 10, 2010; 1:18 PM ET
Categories:  Blue sky series , Jobs forum  
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Next: The health-care reform bill's empty promises, and their curious fullness

Comments

1. Stern's plan is moronic.

2. Mr. Baker heartily endorses that plan.

Posted by: ostap666 | September 10, 2010 2:30 PM | Report abuse

i haven't read these plans but I will because I'm sure that since Andy Stern is endorsing them i'm sure its just a matter of time before the administration does.

With that being said even with the funny stimulus math being used we had $800 billion or so used and they claim to have "saved 3 million or so jobs). So does anyone else see the disconnect here in the cost per job with either the stimulus or this or both?

Posted by: visionbrkr | September 10, 2010 2:34 PM | Report abuse

visionbrkr,

There might be something to the job sharing / short work portion. Germany's unemployment rate never rose much, and is back to pre-recession lows, despite a far harsher decline in GDP. It came in at a pretty moderate cost too.

The construction/youth make work portions of Stern's plan I'm less enamored with.

I'd much rather have an analysis figure out which infrastructure projects make sense, and fund that amount. All of these round numbers ($100 billion for infrastructure) scream 'number pulled out of a hat'. If there's something done for young people, it would be government sponsorship for free internships - national service probably does little to build valuable skills.

Posted by: justin84 | September 10, 2010 3:47 PM | Report abuse

--"[T]he people who were charged with running the economy did not have a clue as to what they were doing."--

Anyone who believes that an individual or small group of individuals is capable of "running the economy" can automatically be presumed a moron.

I'll specifically indict Klein and guest moron Baker in such regards.

Posted by: msoja | September 10, 2010 5:30 PM | Report abuse

I'd like to offer my congratulations to Dean Baker for getting at least *someone* associated with the Washington Post to pay any attention to him.

Posted by: chase-truth | September 11, 2010 8:08 AM | Report abuse

It's been said that if 50 million people have a bad idea, it's still a bad idea.
Thankfully only three (Stern, Klein & Baker) espouse this particular collection of claptrap.

Posted by: OttoDog | September 11, 2010 12:01 PM | Report abuse

The German job sharing approach has considerable merit but it is important to note that it functions only because it is sufficiently difficult for industry to throw off its short term labor problems onto the public. Unlike the U.S., German companies cannot just decide to suddenly lay off people without complying with a notice provision and paying substantial severance to these people. In other words, the only people fired are in jobs the companies have no plans to ever fill again.

But I'm sure that 'rah rah, go U.S.A.' nationalism will prevent anyone here from considering the lessons from others' experimentation. Sure "socialist" countries may enjoy a standard of living every bit comparable to the U.S. but 'everyone knows' they're headed to collapse, some how, some day ... surely (hmmm...).

Posted by: Jamesaust | September 11, 2010 1:13 PM | Report abuse

Work share is an especially intriguing and important idea to address unemployment.As was noted,Germany uses the work share concept and thier unemployment rate is significantly lower than in the US.It should also be pointed out that Germany has a very strong overall safety net,including national health care. Furhtermore,the number of unionized workers is much higher in Germany and unions work with businesses to protect jobs and to increase productivity and efficiency.

Posted by: johnbird1 | September 11, 2010 4:52 PM | Report abuse

What many here seem to be unaware of is that the German model relies heavily on employing youths as "apprentices" at roughly 15%-25% the wage of an adult employee.

Posted by: OttoDog | September 11, 2010 4:59 PM | Report abuse

You know if this was Matt Yglesias's project, he'd call the series "Blue Sky Mining" and would've already solicited comments from Midnight Oil frontman (and Australian cabinet official) Peter Garrett. Beyond that, this series is a great idea Ezra.

I'll preemptively state I'm for whatever Jamie Galbraith recommends, but Edmund Phelps will surely make a lot of sense too. :o)

Posted by: beowulf_ | September 12, 2010 12:32 PM | Report abuse

Doesn't anyone know that we have such a law. NOW? It was introduced in Congress by then Member Patricia Schroeder. It passed. It had the endorsement of AFL-CIO and the Committee for Economic Development. It has been implemented in about twenty states. Read all about it:
"Short-Time Compensation:A Formula for Work Sharing, edited by Ramelle MaCoy and Martin J. Morand, Pergamon Press, 1984, Foreword, Patricia Schroeder, Preface, Jerome M. Rosow, Workin America Institute.
Martin J. Morand, 212/866-2120

Posted by: martinmorand | September 12, 2010 7:12 PM | Report abuse

@visionbrkr

A lot of the stimulus money wasn't well targeted for job creation. There were a lot of compromises. Some of the money was more targeted towards promoting GDP growth. Some of the money was targeted towards putting a floor under housing market. Some of the money was targeted at boosting demand.

The ARRA had a side effect of creating jobs, but it wasn't primarily a jobs bill. It's purpose was to prevent an economic catastrophe. Many of the other problems that the ARRA addressed have abated. So we're left with the jobs problem. And this is a problem that demands a different sort of solution.

One of the things about promoting job growth is that it is necessarily in tension with promoting short-term productivity growth. Some of the new jobs we create will necessarily involve convincing businesses to do a job that would take one person but using two people.

Contrarily, in the long-run this short term inefficiency can promotes growth. We're left with two people who know how to do the job and one less person collecting unemployment insurance.

Posted by: zosima | September 13, 2010 11:04 PM | Report abuse

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