Obama Can Be the First President in History to Abolish Unemployment From the Economy
Tuesday, 01/26/2010 - 9:45 am by Henry Liu | 10 Comments
A bold plan to get Americans working again could restore faith in Obama, argues Roosevelt Institute Braintruster Henry Liu.
The first year of the Obama presidency has been a monumental disappointment. By now, the President’s populist rhetoric of “change we can believe in” rings hollow against the hard data of the sad shape of the economy.
The critical bottleneck to recovery is the continuing loss of jobs. Conventional economic wisdom asserts that employment is the lagging indicator. Unemployment cannot be expected to fall until after the economy recovers. But in an economy that suffers from overcapacity due to low wages, as the world economy does today, economic recovery from excessive debt cannot be achieved without full employment with living wages to produce the needed rise in demand to absorb overcapacity. The government, despite its enormous power to intervene in the economy on the supply side, is stuck in a self-perpetuating vicious cycle of stagnation caused by unemployment that in turn causes stagnation.
Yet all is not lost. The President needs only to reestablish his political leadership with bold and effective action to deliver help directly to deserving workers rather than to failed undeserving financial firms that are allegedly too big to fail. One way to do this is for President Obama to use the coming State of the Union address at the beginning of the second year of his presidency to announce that he will be the first president in US history to abolish unemployment in the US economy. He will be the president who will smash the destructive myth that structural unemployment is needed to hold down inflation even in a deflationary cycle.
This is not an impossible task. The US now has 6.5 million unemployed workers, 4 million of whom joined the unemployment rank during the first year of the Obama presidency. The President can introduce a Full Employment Program starting February 1, 2010 to give a job to every American who wants one, to be funded by a Full Employment Fund constructed out off already-appropriated but yet unspent bailout and stimulus money. These jobs can be socially constructive jobs such as teachers, nurses, caretakers of children and seniors, police, artists, health workers, writers, inventors, etc., with the prime function of increasing demand in the economy.
At the rate of the 2008 national average wage of $42,000, a program to fund 6.5 million jobs will cost $2.7 trillion a year. In the past two years, the government has committed over $20 trillion in various form of bailout and stimulus packages, with very little to show for it in the form of economic recovery. The not-yet-spent portion of this $20 trillion can fund full employment for more than three years at a declining rate. As this money is injected into the economy in the form of living wages, the resultant rise in demand will increase the utilization of the capital assets to reduce overcapacity. A balance between supply and demand will be maintained by full employment to permit the economy to grow again.
The resultant growth in the economy will reduce the spending rate of the Full Employment Program way before the allotted money is depleted. With full employment, the US economy of $14 trillion GDP can grow at a 6% annual rate, producing an additional GDP of $560 billion the first year. The $2.7 trillion Full Employment Fund will be repaid in less than 4 years.
That is a change we can believe in.
Roosevelt Institute Braintruster Henry C.K. Liu is an independent commentator on culture, economics and politics.
This is certainly a bold idea, which is something that seems to be in short supply in Washington. Unfortunately, the rumor that President Obama will be using the State of the Union address to reorient himself as a budget hawk suggests that we still have a long, jobless slog ahead of us.
Posted by Tim | January 26th, 2010 at 10:09 am
Yes, this would be a true breath of fresh air. But unfortunately, looks like it’s going to be 1937 all over again.
Posted by James Call | January 26th, 2010 at 10:27 am
We are living in a period of insanity… As Albert Einstein said.. Insanity: doing the same thing over and over again and expecting different results… We need to look at this problem and others through systemic changes, like those proposed in this article, and in books like Web of Debt..
Posted by funkright | January 26th, 2010 at 1:21 pm
the guys math is totally wrong. He cannot even multiply…. $42,000 times 6.5 million is 273Billion.
Here is my plan…
Give me 1 or 2 Trillion dollars and I will put 11-28 Million Americans to work making 60K a year, with healthcare and pensions, retrofitting American home owners, small business’s, apartments, (eventually large buildings) with energy efficient products like Solar, Wind, windows, etc. Off the grid America goes. 2 Trillion would fund 2 years of this startup that would take 20 years or more to complete. Some of the current utility workers would be moved into this company as demand for Grid Energy lessens. More jobs and small business’s get created as the demand for maintenance on these new technologies grows. Immediately this startup starts paying the gov’t back in the form of employment taxes, personal income taxes, sales taxes, growth in consumer spending, less reliance on gov’t assistance programs. Now figure that income taxes on this company and all the workers could effectively return 150 Billion - 250 billion back to the gov’t annually. But the first two years of this effort, those taxes that would be paid (tax credit) have to be used for the overheads required to run a company this big and get it off the ground.. for the company to buy the materials needed, train the workers. Revenue generation/prices for the products and services would be made affordable to all using tax credit incentives. It would manufacture the products it needs, not have China do it. It would start to re-occupy the over 20% of empty commercial Space in the country now…and many other positive things…
My Plan Annual Cost Employees Salary Bene (50K avg salary)
$1,000,000,000,000 $70,000 14,285714 $50,000 $20,000
$2,000,000,000,000 $70,000 28,571429 $50,000 $20,000
My Plan Annual Cost Employees Salary Bene (60K avg salary)
$1,000,000,000,000 $84,000 11,904762 $60,000 $24,000
$2,000,000,000,000 $84,000 23,809524 $60,000 $24,000
So Obama, to sum it up- give me 1-2 trillion and I/we could create anywhere from 11 million to 28 million jobs depending on the amount received… Unemployment problem fixed! What American would people like to see run a company/idea like this? Joe the plumber? Bill Gates? Oprah Winfrey? Glen Beck???? An Economics professor from North Dakota college? Bill Clinton? Derek Jeter? George Steinbrenner? (don’t laugh, look at his business and charity back round- he gave money to Haiti within hours of the quake), John Stossel? Janet Reno? Condaliza Rice? Sarah Palin? We can all come up with plenty who we would not want… So who would you want or suggest?
Mind you, even if these people sat around doing nothing for 1-2 years they would be effectively employed and insured and spending. How much have we given the Financial system, the banks, the credit companies, the mortgage companies in the past 18 months. If you don’t know, how can you say what needs to be done. the answer is about 11 Trillion Dollars now, not counting the food stamp program, bailing out the auto industry and some other small “helpful” programs that adds about another 300 Billion to the total. whoopy do , 300 Billion for 305 million Americans and 11 Trillion for the other 1 million or so rich wall streeters, bankers and politicians.
What do people want? decent job, decent health care, a home… why is it so hard.
Posted by MM CA | January 26th, 2010 at 3:45 pm
Henry,
I like where your head’s at, but funding government jobs for average wage of $42,000 $21/hr plus benefits) is both too generous and too unfocused to not turn into political quagmire (Fox News will make it its mission to track down every “artist” and inventor” who’s put on the federal payroll).
A better play would be theguaranteed job program that Wray and Mosler have long proposed, with wages set just above minimum wage. You’d get people back to work without distorting the private-sector job market. So take the $2.7 Trillion figure you suggested, put $500 billion into a lower wage guaranteed jobs programan spend the balance on the $2.2 trillion in needed infrastructure spending (per the American Society of Civil Engineers).
Posted by beowulf | January 26th, 2010 at 9:01 pm
MM,
Thanks for the arithmatic correction.
I am a concept man, not an accountant.
The importance is the arithmatic error did not invalidate the concept.
Nowadays free money, one can easily add or lose a zero and be forgiven.
Hard to count a string of zero’s from my commputer cacculator.
I understand that Eienstein was also a bad arithmatic student.
Any way, I error on the positive side.
The low sum strengthen my concept.
Operationally, the Fully Employment Fund,, now put at $270 billion, instead of $2.7 trillion, will be a self replenishing revolving fund as full employment bring about recovery and growth. But even it the Fund is $2.7 trillion, it would work.
beowulf,
I understand your concern. Yet the idea is not to give everyone the average wage, which is only a notional value. The point is the purpose of a Full Employment Program is to deliver money directly to workers. It is not to get the most work for the buck which would again exacerbate supply side excess.
Actually, to go a step further, I propose a parallel project to help the underemployed, now that I have one more zero to work with (wink).
I would propose an alternative minimum income, applying the principle of alternative minimum tax. Any underemployed person shuld be also to collect from the IRS the difference in his/her income from fully employed.
The concept is to get away from the American Puritan fixation about overpaying workers.
The idea I put forward will benefit from many suggestions of refinement and improvement. The two above are a good beginning. I welcome more.
Posted by Henry C.K. Liu | January 27th, 2010 at 10:47 am
The most brilliant economic statement I have heard in years:
“But in an economy that suffers from overcapacity due to low wages, as the world economy does today, economic recovery from excessive debt cannot be achieved without full employment with living wages to produce the needed rise in demand to absorb overcapacity.”
So simple, yet so hard for so many to grasp.
Posted by Benedict@Large | January 28th, 2010 at 1:42 am
From OpportuniTV.com/many-jobs/:
Popular online markets for customized education (CE) can be expected to catalyze the creation of many jobs.
From a November 6, 2009 article in the Wall Street Journal:
“According to the Census Bureau, nearly all net job creation in the U.S. since 1980 occurred in firms less than five years old. A Kauffman Foundation report released yesterday shows that as recently as 2007, two-thirds of the jobs created were in such firms. Put more starkly, without new businesses, job creation in the American economy would have been negative for many years.”
From a 2005 report by The Nielsen Company:
“By enabling entrepreneurs to start a business online and immediately reach a market of 157.3 million registered users worldwide, eBay has become the best place to start, grow and operate a small business.”
Harvard Business School professor Clayton Christensen is the originator of the canonical Model of Disruptive Innovation, and a co-author of the 2008 book Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns. From Disrupting Class:
“Students need customized pathways and paces to learn.
…The second [phase of the disruption of standardized education] will be the emergence of a user network, whose analogues in other industries would be eBay…”
Stanford economist Paul Romer is the originator of New Growth Theory, which updates growth economics for the information age. From Romer’s entry on Economic Growth in the 2007 edition of The Concise Encyclopedia of Economics:
“The country that takes the lead in the twenty-first century will be the one that implements an innovation that more effectively supports the production of new ideas in the private sector.”
“Perhaps the most important ideas of all are…ideas about how to support the production and transmission of other ideas…North Americans invented the modern research university…As national markets for talent and education merge into unified global markets, opportunities for important policy innovation will surely emerge.”
From The Mystery of Economic Growth, a 2004 book by Harvard economist Elhanan Helpman:
“Interest in growth theory abruptly revived…in the 1980s. The two key papers were by Romer (1986) and Lucas (1988).
…Romer (1990) also initiated the second wave of research on the “new” growth theory.
…A more detailed study of the U.S. economy is provided by Jones (2002). He found that between 1950 and 1993 improvements in educational attainments, which amounted to an increase of four years of schooling on average, explain about 30 percent of growth of output per hour. The remaining 70 percent is attributable to the rise in the stock of ideas that was produced in the United States, France, West Germany, the United Kingdom, and Japan.”
In particular, CE markets can be expected to attract many buyers and sellers of corporate training.
From a May 20, 2004 article in The Economist:
““There has been a huge swing to custom programmes,” says Fiona van Haeringen of IESE, who attended a recent annual conference of business-education providers in America…Looking to this year, most saw growth coming mainly from customised education.”
From Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change, a 2004 book co-authored by Christensen:
“Modular, customizable corporate training has an advantage that interdependent M.B.A. programs can’t match — a product specifically designed for each employee’s needs.
…In contrast to the leading schools’ integrated structure, the on-the-job management education industry is a disintegrated one. Hundreds of specialized firms develop materials, others design courses, and others produce and teach them.”
…Companies that introduce a CE market will race to:
1. provide loans to CE consumers
2. become a bank, as a means of increasing the amount of money that
the company can lend
3. introduce more loan programs and financial services that
complement the market (e.g., loans to small businesses, so more
jobs are available to CE consumers)
Posted by Frank Ruscica | February 3rd, 2010 at 7:16 pm
A little late to this discussion but I would like to throw my working man’s perspective into the fray.
Unions are being systematically decimated because of factory closings and cheaper labor purchased abroad. Later, all labor will be procured in cheaper and environmentally dirtier locations. The goods produced in these areas are then shipped back to the US (and other countries that can afford them) at inflated US prices. If tariffs were in place these same goods would not be so lucrative to produce abroad. Then the average American would have purchasing ability because of continued employment.
Many profitable companies have been leveraged to the eyeballs, then gutted, drained and workers robbed of employment, pensions and other forms of security.
FDR welcomed the hatred of these self-serving robbers in his day. Now, the POTUS employs the same criminals in his inner circle.
Posted by Dale Mosher | March 4th, 2010 at 10:22 pm
Your plans should work just like Greece.
When the government pulls money from productive areas of the economy and injects it into less productive areas, we all suffer a loss. As more wealth is extracted from the successful areas of production, more restrictions (rules, laws, wage restrictions)placed on production, etc. the effeciency of the country declines… production moves to other areas of the planet.
The government will either back off and let the free market recover in whinch case the country will thrive and grow providing opportunities for everyone… or the government will increase the theft of wealth from those who are successful and give it to those who are less than successful, causing total wealth to decline until we push growth to a permanent level of high unemployment, declining living standards, and economic decline.
Posted by WBH | May 23rd, 2010 at 12:42 pm