[From a talk I just gave…]
This wonderful setting has led me to meditate on the four noble truths of Buddhism: 1) suffering exists; 2) the causes of suffering can be known; 3) suffering can cease 4) the path to end suffering exists. It is the way.
So it is with full employment: unemployment exists; its causes can be known; the unemployment rate can be lowered; there is a path to full employment.
I’m not trying to be glib here…I think it is consistent with ethical thinking, good economics, not to mention the values of Buddhism, to equate unemployment and suffering, especially long-term unemployment of which we still have more than any period on record going back to 1940s when that data series begins.
So let’s go through these four noble truths of full employment.
Unemployment exists. I suspect I don’t have to work very hard to convince you of this one, but in my work, I’ve tried to stress that it’s not just unemployment that exists. The 7.6% rate doesn’t capture the slack in the current job market. Underemployment also exists and has been stuck around 14%, including millions of involuntary part-timers who want to work full-time. And the unemployment rate is also artificially depressed by folks who’ve given up looking for work.
The causes of unemployment can be known. And I think I know them…or at least a bunch of them.
Education: While unemployment’s gone up proportionally for each education group, the jobless rates of less educated workers are a lot higher than those of say, college grads. So one long-term part of the solution is better access to education, especially higher education and especially for kids who face steep access barriers.
You may be surprised that someone who’s always eschewed supply-side solutions to joblessness and emphasized demand-side ones would start out with education, which doesn’t, in and of itself, create more jobs. But I wanted to make sure to get it out there.
Near-term fiscal policy: Back to demand. Clearly, our fiscal policy, like the sequester, is pushing the wrong way on the unemployment rate. Same with our choice to allow the payroll tax break to expire this year. And this next point may be underappreciated: next year’s sequester invokes a larger spending cut than this years’ (for timing reasons, the outlay cuts are twice as large). So the sequester gets worse in terms of fiscal drag…not better.
At this point, I’ve given up trying to get Congress to do the right thing on fiscal stimulus. But I haven’t given up trying to get them to take the Hippocratic Oath to do no harm.
Technological unemployment: Everyone here knows about the long term divergence of productivity and middle-class income growth, but Figure 3 in you handouts shows a more recent divergence between productivity and job growth. Economists haven’t nailed this down by a long shot, but there’s at least anecdotal evidence that the pace of labor-saving capital investment has accelerated in recent years, leaving more workers displaced by technology. Robotics is an obvious factor here, but there are lots of other ways in which firms are squeezing more output out of fewer workers.
Again, we’ve been here before where it looked like technology was displacing workers, and the intervening variable has always been demand, in a sense soaking up that faster productivity growth. So, I don’t want to push too hard on this, but I think there’s something to it, and my solutions—the path to full employment—will reflect that belief.
Globalization: I’m a big supporter of globalization and increased trade between nations, not just because of its economic benefits to the US (I’ll get to the costs in a second) but because I want Bangladeshis to have a chance to escape poverty. But in regard to the suffering generated by high unemployment, too often economists, when we think about globalization, think of people solely as consumers, never as workers. Lower prices is a benefit of globalization, but lower wages and job losses are a cost. This also implies that the issue here isn’t trade per se…it’s unbalanced trade.
Disparaging and cutting the public sector: Even while private sector employment has been growing, state and local budget cuts have led to the loss of hundreds of thousands of public sector jobs, including education. Federal pay cuts and furloughs are, as we speak, dispiriting that workforce. And the unemployment rate would be about a point lower absent all these layoffs.
Increased financialization of the economy: I’ll say more about this in a moment, but what I call the shampoo economy—bubble, bust, repeat—is clearly implicated in our current slog. It’s not that finance doesn’t create jobs—it does. It’s that, unregulated, it increases excessive leverage and instability which then take a long time to get out of the system. This is not new—it’s been known since Adam (Smith), and further developed by Hy Minsky. It’s just a lesson we apparently have to keep learning at great cost in terms of lost wealth and jobs. It would be good to not have to do that again anytime soon.
Unemployment can be lower: This noble truth may sound obvious to you but you wouldn’t know it from watching what policy makers have been up to. There is no real urgency about our persistently elevated unemployment rates. And in Europe, it’s worse.
Why is this? Certainly it relates to deficit attention disorder—obsessing over the budget deficit has fed the austerity that is so contra-indicated right now. Mention a jobs idea and before you finish the sentence, some member of Congress will ask how you’re going to pay for it and
tell you how it’s going to blow up the future, etc.
But there’s also a sense that we don’t know how to lower the unemployment rate. Which leads us to the most important noble truth.
There is a path to full employment: These are some of the important steps on the Tao of full employment:
—First, do no harm. For sure, policy makers must stop blowing fiscal headwinds. But in the longer term, this step on the path to full employment requires financial regulation. We can’t get down the path if we’re constantly being blown miles back when these bubbles explode.
—Direct employment. Because of technological employment—recall that split between productivity and employment growth—and the fact that many minorities’ unemployment rates are consistently in recessionary territory, we cannot count on growth alone to get us to full employment. It is necessary, not sufficient.
So we need a government program to absorb excess labor. I’m not talking about sending a bunch of guys—it was mostly guys—out into the woods to build a damn like in the 30s. Those days are behind us. I’m talking about something like the TANF subsidized jobs program that, though relatively small bore, was quite successful during the Recovery Act, employing hundreds of thousands through wage subsidies up to 100%. I can say more about this later if folks are interested, and you have to worry about displacing non-subsidized workers in these types of programs, but I’m increasingly convinced that direct job creation by the public sector (though not necessary for the public sector) has to be part of the solution.
Infrastructure investment—improving our stock of public goods—also fits in here.
—Manufacturing policy, including reducing the trade deficit. There are a lot of lost jobs embodied in that deficit. Dollar policy fits in here and there is legislation that could lean against competitors who manage currency to put us at a competitive disadvantage. The Obama administration favors investments in innovation hubs to try to move R&D more seamlessly from the lab to the factory floor. Not sure what’s there in terms of jobs, but those sound like potentially smart investments in the sector. Certainly many of our competitors—think of Germany—have deep government/management/union partnerships to promote manufacturing and expand their export markets.
—Clean Energy. I included in the handout a slide from economist Bob Pollin’s work showing the jobs created by $1 million invested in clean energy relative to other sources, like fossil fuels or the military. I’m not sure about the numbers—I’ve seen wind farms that don’t employ a lot of people. But Bob’s also talking about many more labor intensive parts of the green job landscape, like retrofitting, which potentially use more workers.
More broadly, here again the President’s got the right idea, though you see a split between his rhetoric and his budget. It’s hard to see how he can make these investments—advanced batteries, renewables, smart grid—if they’re cutting that part of the discretionary budget. Not nearly as deep as the R’s cut, for sure, but still…
The Buddha wandered the world spreading his teachings to followers who saw no way out of their suffering because they understood neither its origins nor their control over it. We feel much the same way, I fear, accepting unacceptable levels of joblessness because we’ve decided we can’t bring them down. That’s wrong. We must pursue the path, with urgency, if not to enlightenment, then at least to full employment.