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Reich writes: "Republicans say America can't afford to spend more. In truth, we'll be in worse shape if we don't. If the economy remains dead in the water, the ratio of public debt to the total economy balloons."

Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)



America Faces a Jobs Depression

By Robert Reich, Guardian UK

29 September 11

 

he Reverend Al Sharpton and various labor unions announced Wednesday a March for Jobs. But I'm afraid we'll need more than marches to get jobs back.

Since the start of the Great Recession at the end of 2007, the potential labor force of the United States – that is, working-age people who want jobs - has grown by over 7 million. But since then, the number of Americans who actually have jobs has shrunk by more than 300,000.

In other words, we're in a deep hole - and the hole is deepening. In August, the United States created no jobs at all. Zero.

America's ongoing jobs depression - which is what it deserves to be called - is the worst economic calamity to hit this nation since the Great Depression. It's also terrible news for President Obama, whose chances for re-election now depend almost entirely on the Republican party putting up someone so vacuous and extremist that the nation rallies to Obama regardless.

The problem is on the demand side. Consumers (whose spending is 70% of the economy) can't boost the American economy on their own. They're still too burdened by debt, especially on homes that are worth less than their mortgages. In addition, their jobs are disappearing, their pay is dropping, their medical bills are soaring.

Businesses, for their part, won't hire without more sales. So we're in a vicious cycle. The question is what to do about it.

When consumers and businesses can't boost the economy on their own, the responsibility must fall to the purchaser of last resort. As John Maynard Keynes informed us 75 years ago, that purchaser is the government.

Government can hire people directly to maintain the nation's parks and playgrounds and to help in schools and hospitals. It can funnel money to help cash-starved states and local government so they don't have to continue to slash payrolls and public services. And it can hire indirectly - contracting with companies to build schools, revamp public transportation and rebuild the nation's crumbling highways, bridges and ports.

Not only does this create jobs but also puts money in the hands of all the people who get the jobs, so they can turn around and buy the goods and services they need - generating more jobs. Not exactly rocket science.

But congressional Republicans are firmly opposed. Why don't Republicans get it? Either they're knaves - they want the economy to stay awful through next election day so Obama gets the boot. Or they're fools - they've bought the lie that reducing the deficit now creates more jobs.

Republicans claim businesses aren't hiring because they're uncertain about regulatory costs, or their taxes are too high, or they can't find the skilled workers they need. But if these were the reasons businesses weren't hiring - and consumer demand were growing - we'd expect companies to make more use of their current employees. The average number of hours worked per week by the typical employee would be increasing.

In fact, the length of the average workweek has been dropping. In August, it declined for the third month in a row, to 34.2 hours. That's back to where it was at the start of the year - barely longer than what it was at its shortest point two years ago (33.7 hours in June 2009).

Republicans say America can't afford to spend more. In truth, we'll be in worse shape if we don't. If the economy remains dead in the water, the ratio of public debt to the total economy balloons.

Besides, the United States can now borrow money from the rest of the world at fire-sale rates. Interest on the ten-year Treasury bill is now just a notch above 1%. That's an almost unprecedented deal. With so many Americans unemployed and so much of our infrastructure in disrepair, this is the ideal time to get on with the work of rebuilding the nation.

But it won't be enough for government to become the buyer of last resort – in Keynes's words, to prime the pump. If the economy is to continue to grow and create jobs after the government has stopped the priming, there must be enough water in the well. Yet, now and in the foreseeable future, America's vast middle class doesn't have the purchasing power to keep the mechanism going.

For more than 30 years, the median wage in America has barely increased, adjusted for inflation – even though the economy is twice as large as it was three decades ago. Almost all the gains have gone to the top - especially the top 1%, who now receive over 20% of total income (it was just 10% in 1980).

As long as America's vast middle class could continue to borrow on the rising value of their homes, they continued to spend - thereby keeping the economy going. But going deeper into debt is not a sustainable strategy. Now, after the bubble burst, America's middle class doesn't have enough money to maintain the economy at or near full employment.

Any long-term strategy for rescuing the American economy must therefore seek to reverse the widening gap in income and wealth. One place to start is tax reform. The earned income tax credit - a wage subsidy for lower-income workers - should be enlarged and expanded. Taxes on the middle class should be reduced - including social security payroll taxes (80% of Americans pay more in payroll taxes than they do in income taxes).

Taxes on the wealthy, on the other hand, should be increased. The president has proposed closing some tax loopholes that allow the super-rich to reduce their tax liability, and to end the tax cut on the rich put in place by George W Bush in 2001 (thereby increasing the top marginal tax rate to what it was under Bill Clinton - 39%).

But the nation should go much further, particularly in light of the large budget deficit projected several years from now. We need more tax brackets at the top, with higher marginal rates. The capital-gains tax (now at 15%) should be raised to match the income tax rate. And a wealth surtax of 2% should be applied to all wealth in excess of $7 million.

Needless to say, Republicans won't go along with anything like this. They balk even at the president's modest plan. It would be better for President Obama to assume that he will get no Republican support this year and next, and build his 2012 election campaign around a bold plan to revive jobs and the American middle class.


Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including "The Work of Nations," "Locked in the Cabinet," "Supercapitalism" and his latest book, "AFTERSHOCK: The Next Economy and America's Future." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.

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Comments  

 
+24 # chick 2011-09-29 22:12
Mr. Reich you are so right on all counts. I sure wish you were in our Government. We certainly need wise men like youi. I do not know why the president does not ask your advice on these issues. I always e-mail him about your remarks and hope he is listening. I wish!.
 
 
-45 # Martintfre 2011-09-29 22:28
We have a jobs depression because of meddling bureaucrats who get in the way of every damned ting - like the federal government really needs to control the size of my toilet tank..nuts totally nuts
 
 
+13 # Merschrod 2011-09-30 06:55
Martín,
You must know "Joe the Plumber" - why are you against the efficient use of water, and, by extension, the cost of sewerage management and pollution?
 
 
+5 # BradFromSalem 2011-09-30 13:10
I know the toilet tank reg may have been counter productive. Do you have an alternative? The problem is water being wasted. Focus, man. Without water, our food supply dries up. These things are connected. So, go ahead tell me the government is totally f-d up because you want a bigger pot to piss in.

The cumbersome regs are not the problem preventing millions of jobs being created. If anything they are creating jobs. Albeit these are jobs that add little to the economy. But that is not much different than a hedge fund gay or gal.

Focus, we need jobs. Efficiency after Jobs. Deficit reduction after Jobs. Tax cuts, useless.
 
 
+16 # angelfish 2011-09-29 23:23
True, Mr. Reich. If the President's re-election hinges on the ReTHUGlicans, he's dead in the water. Their SOLE purpose since his inauguration is to BRING HIM DOWN and they don't give a big Rat's Patoot if the Country tanks in the process! He and his advisers, I HOPE, are FINALLY hip to that fact and will plan accordingly over the next 14 months. Hopefully the Democrats in Congress will come together and rally around him to keep the Fascists from getting into the Oval Office next November! If they don't, we are TOTALLY screwed! I DO have hope, in that, America seems to be waking up to the fact that Wall Street MUST be held accountable! Kudos to ALL in Liberty Plaza! Now, if we can only get Congress to do their JOBS, maybe the rest of America could find some gainful employment as well!
 
 
+9 # balancingact 2011-09-29 23:43
Professor Reich, I agree that you are espousing commendable policy changes. The inequality in this country is now blatantly clear and unjust.

But still, I hear you arguing for a consumption-bas ed, endless growth economic model. You write: "The problem is on the demand side. Consumers (whose spending is 70% of the economy) can't boost the American economy on their own" and "If the economy is to continue to grow and create jobs after the government has stopped the priming..."

But please, there is no mention of the impact that our economic system is having on the environment.

I regret to say Mr. Reich, I've read several of your articles and they appear to be consistent insofar as they maintain a perplexing disconnect between our economic activities and the environment upon which we depend.

The students at Berkeley whom I presume you are teaching would be those whose futures undoubtedly will be affected by our present economic disdain for ecology.
 
 
+3 # jsheats 2011-09-30 12:26
Economic growth and physical growth (consumption of materials and energy) are not inevitably coupled. The internet which we are using at this moment for this discussion, instead of tree-based newspapers, is one dramatic illustration.

Your concern for environmental effects, and implied desire for a system which lessens them while maintaining a healthy economy (which is just the interaction of individuals for mutual benefit) is highly commendable. But I don't see that it is at all inconsistent with Mr. Reich's analysis and solutions.

Amory Lovins pointed out long ago (and very cogently) that the cheapest source of new energy is almost always not using it. That, however, takes innovation in the way we do things, and that is a tremendous source of employment.
 
 
+1 # balancingact 2011-09-30 18:20
Thanks "jsheats" for the reply. I think I get the gist of your point and there is validity there when we consider ways to minimize our economic impact on the environment.
Still, the argument of promoting consumption and growth as a panacea while simultaneously omitting the actual dynamics involved in our economy is tantamount to advocating for no solution at all.
It is understandable, in a way, that the environment has been so removed from political discourse. Our urban lifestyle and technology- including unremitting corporate advertising- reinforce a sense that we are separate from nature, that nature is something you visit at park or go camping in, etc. But upon examination, this isn't the actuality.
The earth is said to be billions of years old and the biosphere and life have and are co-evolving- the boundaries are ambiguous. This is how closely we depend on our environment.
Professor Reich has an important public platform and this is why it is so crucial that we are reminded that our economic activities, as they are today, are amazingly out of sync and out of balance with the rest of nature. The evidence for this conclusion is flooding towards us everywhere. Thus, I would hope Mr. Reich addresses fossil fuels, the climate, agribusiness and the military budget and resource use, etc. if he is sincere about moving in a positive economic direction.
 
 
+1 # jwb110 2011-09-30 00:07
I am not so sure that we aren't in worse shape than in 1929. This may be the Great Depression. They, and that means the center, left and right, have been putting a lot of lipstick on this pig but it is still a pig. Great Recession, double dip. All bull to cover up or not say the "D" word.
I am not so sure that in this lunatic climate of the Tea Party/GOP real gov't spending can be done.
What the Federal Gov't could do is organize the creation of State Banks and let those lending institutions do what needs to be done to help the economy stabilize. They might not be able to do more than that but stopping this racing downturn is a real big step. State Lenders will also help to save or get small businesses started. They could re-negotiate/re -finance houses and keep the out of foreclosure.
The Federal Gov't would not have to spend money on this. Just take some of the existing civil servants in any number fed depts. and get the started. Let the Sec. Of The Interior oversee it.
The Dems could also take the tact that "price supports", a re-branding the term subsidies, cost the American people in taxes and in the prices they pay. So subsidies in this economic time have to stop.
Also the Dems have got to make sure in every piece of legislation cutting entitlement programs that the percentage of budget cuts be reflected in less tax on the public.
 
 
+11 # Michael S. Cullen 2011-09-30 02:13
Perhaps you can add more heft to your great comments by referring to such things as the TVA and other great projects of the New Deal. Republicans like to say that by borrowing we are throwing a great burden on future generations (interest on loans, higher taxes, etc). But: isn't the TVA (for example) still providing electricity and other benefits for those in the Tennessee Valley? Do people who live there think they'd be better off had FDR not been so forward-thinking?
Michael S. Cullen, Berlin, Germany
 
 
+5 # Michael S. Cullen 2011-09-30 03:09
Perhaps it might be useful to redefine such terms as "recession", "growth", etc. Every time I read such terms, I think of doctors pronouncing a patient healthy after taking blood pressure, pulse, BMI but neglecting body temp. Pronouncements on economic health should factor-in the unemployment rate. An unemployment rate above 5% should mean: more medication and more exercise are required.
Michael S. Cullen, Berlin, Germany
 
 
+3 # PiscesCurveUS 2011-09-30 03:49
Problem: Not enough "money" to make enough jobs
Solution: Monetary Reform

Anyone whose serious about *ending* the structural unemployment game, as opposed to show-boating, now knows this.

America has had this (structural) monetary problem for a very long time, and it is now coming to a tee, this decade.

Those who understand the following quote will not be Millennialist fools:
"...Money exists not by nature [commodity], but by [public] law."
- Aristotle ("On Ethics")

Money is simply the oil that helps the machine of society function. Unfortunately, this abstract concept's creation is (still) in the hands of an unaccountable private syndicate.

The 2010s are about 'we the people' taking it back from them, and living in a much better future for us all.
 
 
+6 # Rara Avis 2011-09-30 04:15
Professor Reich is correct. The wealth gap in this nation is so wide and middle class Americans so strapped that they cannot spend. If business even wants their customers back they are going to have to be willing to allow money to come back into their hands. You cannot spend what you do not have.
 
 
+7 # Merschrod 2011-09-30 05:00
Reich’s commentary is always thought provoking:

1) Obama re-election possible only if the Republics put up an extremist – Ok, I’ll buy that, but that would mean 8 more years of depression with the Obama Economic team that came out of the past without solutions.
2) Put money into the hands of the consumer so that they can stimulate the economy – right on, again, with past economic assumptions, the assumption is that the consumers stimulate the producer neighbors. Unfortunately, as I point out year after year, the whole manufacturing and wholesale part of our economy has been hollowed out and the producers are not part of the US economy. That feed the consumer demand strategy does not work in an opened economic system. The multipliers are shot to hell!
3) “Build his election on a bold new plan” Hey, I’ll go along with that, but where will the bold come from?

All in all, we are in rough shape, the US pulled out of the 1930s depression because it came out on top of WWII as the only industrial system functioning and the rest of the world needed our factory output. Now, the world gets its factory output from slave/state capitalism of China and not a union organized and National Labor Relations Board protected American workers.

Can the barn door be closed after the cows have gone to pasture?
 
 
-17 # MidwestTom 2011-09-30 06:08
Under Truman, Eisenhower, and Roosevelt, our President would simply order 20 million illegals out of the country, and the job crisis would be over. This President is too concerned about being re-elected to be a leader.
 
 
+10 # Merschrod 2011-09-30 07:02
Tom, the Illegal immigrants are not the cause of this problem - a minor part at best, it is the offshoring of the productive jobs.
Decent immigration law, long ago, would have fined employers (including housewives and house husbands who hire nannies and gardeners) severely for hiring undocumented workers. But that was resisted by both parties.
 
 
+9 # Urbancurmudgeon 2011-09-30 06:23
This is the clearest, most straightforward explanation of both problem and solution that I have seen yet. It is so clear that it solidifies the belief that the Republicans have abandoned their responsibility to govern for the self serving goal of winning the next election; clearly an abrogation of responsibility to the citizens of this country and arguably a treasonous betrayal.
 
 
+6 # Merschrod 2011-09-30 07:06
Curmudgeon, the problem began a long time ago with bipartisan support for unbalanced trade, free trade and also monetary policy. Pres. Obama is only the figurehead and not the leader of the same old crowd. Yes, the extremists of the right would take us further from traditional values of collective responsbility, but basically it was Republican and Democratic economic orthodoxy that brought us here. (And will not carry us out of the crisis.)
 
 
+6 # sandyclaws 2011-09-30 07:30
In a time when we need to put Americans to work, why is California buying what amounts to "Walmart" bridges from China? They are being built in China and then shipped here in sections. Are we that stupid? Or has California just got trapped in the Walmart mentality. Either reason doesn't help us one bit! Buying from China is what caused our problem!
 
 
+7 # sandyclaws 2011-09-30 07:47
Midwest Tom doesn't get it. Stop drinking the republican't's cool aid. There has been a crackdown on illegals and there are crops in the fields that aren't being picked because of it. How many of our children have chosen migrant farmwork for their life's career? Our continued addiction to oil (when it is depleting and becoming more costly) and the absence of pickers in the fields, and the major turn of farmers to corn ethanol is taking a huge toll not just on us but the world food supply. Let's not forget the effects of climate change on crops as well.Meanwhile oil companies are fracking up our drinking water supply and now they want to bring a leaky pipeline across our breadbasket with the almost certain result of water contamination. We need jobs here that are clean and will move us toward renewable energy, because that will be the only energy we will be able to afford.
 
 
+2 # fredboy 2011-09-30 07:53
Once jobs were shaved to the bone, employers learned they could do with less. So did not rehire. Especially in light of flat or weak production expectations. Also, many service and white collar "layers" of employees disappeared amid emergency efficiency efforts. Now the only solution is to move the nation forward with new technology, new approaches and--you guessed it--the new jobs they will springboard.

One interesting learning point is Apple. Amid all the chaos, downturns, layoffs, etc., its customers remained loyal and actively buying. And championing the company. There are dozens of great lessons with this case. Hope you write about these in the future, perhaps sharing a vision all of us can follow.

Look also to the future. The rising young consumer generations are now weaned of the false "American Dream" nonsense of home ownership, perfectly content to rent. They are also highly mobile, thus reinforcing their dread of "anchor" housing and its related expectations and expenses. The entire future US economy needs to adjust to this development.
 
 
+5 # fredboy 2011-09-30 07:56
Truth be told, since 1980 Republicans have failed to understand the economy or the concept of shared economics essential to sustain a rising, developing populace.
 
 
+3 # Vardette 2011-09-30 09:07
How could there not be given the circumstances. I predict another Great Depression.
 
 
+5 # boadacia 2011-09-30 09:11
The republicans and the big corporations have enjoyed big tax breaks for years. Where are the jobs? Face it. Trickle down hasn't worked, doesn't work, and the corporations are busy outsourcing jobs to countries where the wages and standard of living are less.
We need a huge public works program to fix the outdated infrastructure, to add solar to homes, to up date the transportation system to be less car and auto dependent as well as accomplishing a slowing of the changing climate. We need to fund the country into a future that will be very different than the one we are emerging from.
And by the way--the democrats are culpable for the downfall of the US as well since over the past few years they have been complicit in voting in all the tax changes, expensive wars, and other things that have led to the downfall of the middle class.
Nothing less than a sea change in attitude will save us.
 
 
+6 # reiverpacific 2011-09-30 09:46
Depression it is and I'm living it! I've survived and even prospered through other "Recessions", partly being overseas and partly just finding a new hat to wear and work hard at it, as I'm pretty creative and fiercely independent. But this is ALL-ENVELOPING and seemingly without cessation (like the wars which are draining the larger economy). All my customers have cut their orders in half this year and they are hurting too as in a typical domino effect.
No one can get a loan to improve their small business, many have had their credit ruined -including y'r 'umble servant- and all we hear is "Jobs! (but no results)" on one side and "No jobs -so be it!" on the other, which translates into political monopoly-games with our collective future prospects.
Dammit, I refuse to lie down but there has to be some encouragement from above.
Hell, the infrastructure is falling apart so why are the Feds not pushing for this alone + high-speed rail and all the peripheral benefits emanating from these hubs nationwide but -"No" again. The dark ages are not over and backsliding is happening. Depression it is!
 
 
+1 # kent 2011-09-30 09:51
Once, again, Professor, you have nailed it!
The Gordian knot that you describe; consumers not consuming due to lack of means to pay for consumption, businesses not expanding due to lack of sales, etc.
The knot needs to get untied!
 
 
0 # KB166HF 2011-09-30 11:03
Prof. Reich,
There is another big issue which I'd like to see you address: the demographics of the babyboomers aging, cutting back on spending, increasig their savings rate and the fact that there are not enough future consumers in the coming up generations to stimulate the economy, until the Millenials get in the work force in a big way. I predict another major downturn 2012, stagnant until 2016 with a glimmer of growth and then continued growth (from new products, services, green technologies, etc) until healthy economy by 2021.
 
 
0 # heinzgn 2011-09-30 18:02
We have exported 50,000 factories and with them 20 Million jobs. We need to replace what was lost and build thousands of new factories utilizing the latest invented-here technologies in order to obtain and keep a competitive edge. This is where the jobs will come from.
 
 
0 # heinzgn 2011-10-01 02:18
We have exported tens of thousands of factories and with them millions of jobs. We need to replace this loss and build thousands of new factories utilizing the latest invented-here technologies combined with superior manufacturing quality, in order to obtain and keep a competitive edge. This is where the jobs will come from - only from here.

This task is monumental and will require strategic governmental coordination in the form of agreed-upon, long-term national programs and taxpayer support to help with a stable business environment.

We need to change our attitudes and understand, that every taxpayer is not only a paycheck-receiv er, but also the co-creator of his very own well paid job, capable of creating demand. We must become one big results committed team whose output will nourish the economic cycle to the benefit of everyone’s quality of life.
 
 
0 # KittatinyHawk 2011-10-01 19:09
You are just realizing that our past 5 Rethugs have sold our jobs out from under us, Scary.
 

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