The “Jobless Recovery” in the U.S.: What Happened to the Jobs and to Wages & Why? And What Can be Done?

By Andy Winnick

For a brilliant and comprehensive account of where the U.S. economy now stands and why and what should be done, read this article.

Some Background

The term “jobless recovery” has entered the vocabulary of those concerned about the current state of the U.S. economy as it applies to the employment situation in the aftermath of the recent recession (which officially extended 19 months from December 2007 to June 2009).  The term “jobless recovery” reflects a concern that while the overall U.S. economy, as measured by the Gross Domestic Product (GDP: roughly the total dollar value of all goods and services produced within the United States in a year) has been growing since the third quarter of 2009, the number of jobs created and the total number of those employed through the end of 2013 has not increased at anything remotely close to the same rate. In fact, jobs continued to be lost for 10 months after the official end of the recession, until March 2010 when the U.S. saw the first monthly net increase in jobs since January 2008. The U.S. economy suffered a net loss of jobs for 25 consecutive months from February 2008 through February 2010. There was a net loss of jobs again from June through September 2010, 16 months after the official end of the recession.

In total, from February 2008 through February 2010, the U.S. lost a total of more than 8.7 million jobs. However, from then through the end of 2013, the U.S. added only 7.6 million, for a net loss of 1.1 million jobs.  But that is the tip of the iceberg, because the U.S. needs about 150,000 new jobs per month to simply keep up with the normal increases to the working age population. So starting from when the job losses began in 2008 through the end of 2013, the U.S. needed 10.7 million new jobs to accommodate population growth, in addition to needing to make up for the 8.7 million lost jobs. (This is consistent with the official figures for the increase in the adult civilian population from 234.7 million in January 2009 to 244.4 million in December 2012.) So the net shortfall in job creation as of the beginning of 2014 is in the area of 12 million jobs.

The disparity between the jobs picture and the growth in the overall economy is reflected in the fact that by 2011, GDP (whether measured in current or in inflation-adjusted dollars) was already far higher than before the recession, and corporate profits reached historic highs by the end of 2011 and have continued to increase. On the other hand, the unemployment rate at the end 2013 was nowhere close to its pre-recession level of 4.4% in May 2007.  In fact, it reached a peak of 10.1% in October 2009, five months after the official end of the recession.  That is, the unemployment rate continued to increase long after the official end of the recession in June 2009. By June 2011, two years after the end of the recession, the unemployment rate still stood at 9.1%, only 1% point below its peak of 10.1%. By December 2013, four and a half years after the recession, it had only fallen to 6.7% -- which was still 52% higher than the rate in May 2007. (It should be noted that the unemployment rate comes from a survey of households; whereas the number of jobs/employment figures come from a survey of employers.  So there is sometimes some inconsistency between the two figures in the short run, but over the longer run they tend to show quite consistent results.)

Not only has the unemployment rate remained high, but the nature of those unemployed has set historical records.  If someone is laid off, but within a few months finds a new job, that is one thing.  But if someone suffers a job loss, but then, despite vigorous efforts, cannot find another for more than six months, a year, two years, that is a very different situation. The percentage of those experiencing what is referred to as long-term unemployment set new records during and in the years after this Great Recession.  Not since the 1930s has the U.S. seen such a high proportion of the unemployed unable to find a job despite many months, even years of looking.  The country reached a point where there were seven people “officially” (see the discussion in the next section) unemployed for every job vacancy.  That ratio remained at 3 to 1 at the end of 2013. In fact, the real ratio was much worse as we shall see. As a result, unemployment benefits had to be extended from the usual twenty-six week period to ninety-nine weeks, a new record. But then, at the end of 2013 these extended unemployment benefits were abruptly cut off, immediately devastating the families of 1.3 million long-term unemployed, with another 3 to 5 million who would have become eligible in the next few months, who now will not.  And it is important to note that the dollar value of unemployment benefits in the U.S. as a percentage of the previously earned wages runs at about half of what is paid in the major EU nations.

It is no surprise that the long-term nature of unemployment has been devastating for millions of U.S. families.  Millions had to use all of their normal savings and even their retirement monies.  They could not qualify for loans of any sort and millions lost their homes.  The terrible impacts of this long-term unemployment on physical and mental health, marriages, and family violence have been well documented and will have life-long consequences.  Many young people have seen their lives stymied.  Among those graduating from university, most of whom found some work, only 40% could find jobs even remotely related to what they had studied. Their professional careers are likely to be permanently damaged even as the economy improves, as they have to compete with more recent college graduates.  Studies have shown that for people of all ages, the longer they remain unemployed the less likely they are to find work. Employers are using long-term unemployment as a screening criterion. Even for college graduates who worked, but did so outside the usual definitions of their career paths, the probability of their getting back on that path goes down the longer their out-of-field employment lasts.

The Impact of How the Term “Labor Force” is Defined

All of these concerns are magnified when one realizes that the unemployment rate is measured as a percentage of the “labor force”, not as a percentage of the population over age 16 or even age 16-64. The labor force is defined as those who are working at least half-time plus those who are “officially” unemployed. To be “officially” unemployed, one must be working less than half-time or not at all, but be able, willing and actively seeking work.  The Labor Force Participation Rate (the percentage of the adult population that is in the labor force) has fallen steadily since early during the recession; in fact, it has continued to fall for the four and a half years since the end of the recession – reaching 62.8% in December 2013, its lowest level since 1978. It is this shrinking labor force participation that is a major cause of why the unemployment rate has declined.  That is, the unemployment rate has fallen in part due to the net creation of new jobs, but it also declined in large measure due to people dropping out, or being forced out, of the “labor force.”

A good example of how these trends interact is what happened in December 2013.  The number of new jobs created that month was 74,000, only half of what was needed to accommodate the usual flow of new entrants to the labor force and nowhere close to the 185,000 to 200,000 that had been occurring earlier that year.  Nevertheless, the official unemployment rate dropped from 7.0% to 6.7%, the lowest rate since the early months of the recession in 2008. So some people pointed to that as a sign the economic recovery was doing well.  But the only reason the unemployment rate fell at all was that 347,000 dropped out of the labor force entirely, at least as it is officially defined.  So, the overall picture was decidedly negative that month, despite the fall in the unemployment rate. The picture was made even worse when it was revealed that the largest group exiting the labor force were age 45-54, the usual prime age for workers, causing the labor force participation rate for this age group to drop to its lowest level since 1988, almost a quarter of a century earlier.

When one takes into account some of those who have left the official labor force, but who still want work (often referred to as “discouraged workers”, “marginally attached workers” and those working part-time who want full-time employment), the December 2013 unemployment rate more than doubles from 6.7% to about 14%. There is evidence that beyond the people enumerated above, there are many others who retired early, not by choice, but simply because they finally gave up ever finding a job. This consideration further raises the rate of real unemployment at the end of 2013 to well above 20%. Finally, there is also evidence that some workers in the 55-64 age group who unsuccessfully had been looking for work get cooperative doctors to certify them as disabled.  With this certification, they qualify for Social Security Disability payments enabling them to survive on those payments until they reach retirement age. So clearly, while the U.S. economy as a whole has grown considerably since the recession, reaching historic new highs in GDP, and while there have been some improvements with regard to employment, the job situation remains far worse than before the recession.

Nevertheless, the term “jobless” is somewhat misleading. Rather, it is the case that too few jobs have been created for those needing and wanting them. When one combines an examination of even the official unemployment problem (which depends on the definition of the “labor force”) with that of the shrinking proportion of the working age population that is in the labor force, it is clear that there continues to be a severe shortage of jobs in the U.S. four and a half years after the end of the recession. (However, it must be noted that the situation in the U.S. is nowhere near as severe as in many European nations.)

It’s Not Just the Number of Jobs, but the Wages and Benefits

Aside from the issue of the number of jobs that have been created, there is a major problem associated with the nature of those jobs. Far too often, the new jobs carried much lower wages, as much as 50% lower, than those that were lost, and too often these new jobs were only for part-time work. In fact, real (adjusted for inflation) hourly and weekly wages in the U.S. for all “non-agricultural and non-supervisory” workers (which account for more than 80% of all workers in the U.S.) were less in 2013 than they were in the early 1970s – 40 long years ago.

Moreover, many of the jobs that were lost, especially those in manufacturing, had come not only with good wages, but also with good pension plans. But most of the new jobs had either no pension plan at all, or only had defined contribution plans (to so-called 401k programs in which small amounts of money are put into the stock market by employers on behalf of employees) rather than defined benefit plans where a specific amount or percent of old-age income is guaranteed.  In addition, the lost jobs, especially those in manufacturing, typically carried good health insurance benefits, whereas many of the newly created jobs carried either no health insurance at all, or provided only far more limited plans. All of these factors have reduced the income of many of those lucky enough to have found new jobs, and left them with much less security for when they get ill or retire.  (The new health insurance programs going into effect in 2014 as part of the Obamacare – Affordable Health Care Act – program will begin to address some of these issues.)

As a result of these trends, the “real” (adjusted for changes in prices) median (middle) level of household income in the U.S. (which is the preferred broader measure than family income, since it includes all those living together in a household even if they are not all related by marriage or birth) dropped by more than 10% from January 2008, at the beginning of the recession, to January 2011 – a year and a half after the official end of the recession. Since then, it has increased only very modestly through 2013, when it still remained about 9% below the January 2008 level and 8% below the level way back in January 2000.

Less someone thinks that this is totally a function of the education of the head of the household, it is important to understand that for households headed by someone with only a high school education, median income had dropped from the official end of the recession through June 2013 by 9.3%, for those with a 2-year college certificate it dropped by 8.6%, and for those with a 4-year college degree by 6.5%. So more education slowed the rate of decline, but it did not stop it.

As usual in the U.S., there is also an important ethnic element to what has happened to real household income from the official end of the recession to June 2013 – 4 years later. White, non-Hispanic households saw a 3.6% drop in median income, Hispanic households dropped 4.5%, and Black, non-Hispanic households dropped a staggering 10.9%.

Inequality and Distributional Effects

A related problem is that during this recovery period, the already very wide disparities in income between the richest 1% and everyone else (about which I have written extensively in an earlier article about the Occupy Movement), widened considerably as a result of the fact that 95% of the increased income generated during the recovery period went to the richest 1% of U.S. households.  Closely related to this is the fact that while corporate profits, especially in the financial sector, increased to record highs, the percentage of total income going to wages and salaries fell to historic lows. It should be noted that most of the income of the richest 1% comes from the profits of business, stock dividends, capital gains, and so-called “carried interest” – not from wages and salaries, despite the fact that CEOs of large firms earn tens and even hundreds of millions of dollars per year in salary.

Closely related to the growing inequality is the stagnation in economic and social mobility.  The U.S. is in love with the myth of “rags to riches,” with the idea that it is “the land of opportunity,” where as a result of hard work, self-improvement, and perseverance anyone can go from poverty to wealthy. But the sad fact is that this myth is no longer valid.  The extent of socio-economic mobility in the U.S. has stagnated for decades and is the lowest of any nation for which we have data. In fact, what is now being studied in the U.S. is the pattern of “rags to riches to rags in three generations” where many upper middle class families are doing far better than the grandparents, but where the children are slipping back below the economic level of their parents.

Turning to the Issue of Why

We have identified the problem: namely, there are currently too few jobs paying far too little in wages and carrying very weak benefits to provide an adequate level of economic support to 90% of American households. Associated with that is the widely and well documented fact that the inequality gap in both income and wealth in the U.S. has been widening for 40 years (since the early 1970s) and is now at a level that had not been seen in the U.S. since the Roaring 1920s. Some even compare the present period to the excesses of the Gilded Age of the 1870s and 1880s.

That leaves us with the really important questions:

  • Why has the U.S. economy not been generating a sufficient number of jobs to bring the unemployment level back down to a level reasonably considered as full-employment, such as 4 to 5%?

  • Why has the proportion of long-term unemployment remained at historically high levels?

  • Why has the proportion of the adult population in the labor force fallen to historically low levels?

  • Why have real hourly wages stagnated and even fallen since the early 1970s?

  • Why has median household income not even begun to keep pace with increases in GDP and has even fallen for sustained periods during which the economy grew?

  • Why has the extent of inequality widened rather consistently since the early 1970s?

  • Why has socio-economic mobility completely stagnated at a comparatively low rate?

  • And how are all these trends connected?

These are the issues to which we now turn.

Then there are the remaining two questions which become of paramount importance:

  • Are there steps that could be taken to correct these problems, and if so, what are they?

  • How likely, or even possible, is it that these corrective steps will indeed be taken?

We will end this piece with an attempt to address these last two overarching questions.

Trying to Answer Some of these “Whys?”

The fundamental issues are how can the U.S. economy show considerable growth in economic production and in corporate profits, while at the same time the number of jobs increases so slowly that the real unemployment rate remains high, the proportion of the working age population that is even in the labor force (employed or unemployed) shrinks, and wages and household incomes stagnate or fall? To understand this current situation, it is necessary to briefly look back at how we arrived at this point.

The Role of the Growing Gap between Wages and Productivity --

The Collapse of Private Sector Unions

One core cause is that advances in technology and communications have enabled the productivity of labor to steadily increase. From 1945-1973, the increases in productivity resulted in the increases in output and revenue being shared between the owners of capital and their workers – allowing for higher wages, shorter work-weeks, and proportionate increases in profits. But what has been happening instead since the mid-1970s is that while productivity continued to increase, wages and the work-week stagnated, while profits increased and production expanded. But that statement begs the question of why this has happened. And here the analysis gets more complicated.

Some of the causes of this new pattern reflect internal changes within the U.S., others are the result of new and accelerating systems of economic globalization. On the domestic front, what has been happening for the last 40 years in the U.S. is a steady decrease in the proportion of the private sector work force that is unionized.  It was always the unionized workers who, when labor productivity increased, would use that fact to push for higher wages, better benefits and fewer hours of work.  Their argument was that this increase in productivity would compensate for the increase in labor costs and still allow for higher profits.  Until the mid-1970s this strategy was successful and wages and productivity went up in close parallel. But the proportion of the private sector labor force (as opposed to the public or government sector) that is unionized has been steadily dropping in the U.S.  For the private sector, the rate of unionization dropped from 36% in the 1950s to just 6.6% by the end of 2012.  This is the lowest rate in 76 years, since 1936 in the depth of the Great Depression. The overall rate of unionization dropped to 11.3%, but this higher figure is due entirely to the fact that the public sector workers’ unionization rate has held at 35.9%.  On a state basis, New York had the highest overall rate, 23.2%, while North Carolina had the lowest, 2.9%.

This compares to the experience in other industrialized democracies where Finland, Denmark and Sweden have the highest rates of unionization (in 2010-11: 69%, 69% & 68%), Belgium: 50%, Germany: 18% (which also has a system of Worker Councils). The only major nation with a lower rate than the U.S. is France, 7.8% in 2010.

Private sector workers in the U.S. were thus left without the means to continue to secure reasonable increases in wages and compensation (wages plus benefits).  Political conservatives always complain that liberals talk about a class war that never happened.  The liberals say that there has indeed been a class war, and workers lost it.  Since 2000, a new war has broken out in which Republicans at the state and national level have now begun a major campaign to destroy the public sector unions, in an attempt to imitate what they have already achieved in the private sector.

The business community has taken much of the extra profits they have secured by holding wages down and spent that money on new technologies that would enable them to greatly reduce the labor force, so that they can produce more goods with fewer workers earning lower wages. This has allowed them to create a more competitive position, especially relative to other developed nations.  Indeed, the U.S. has become such a low-wage nation that Germany builds factories in the U.S. to reduce costs and desperate, non-unionized U.S. workers clamor for the low wage jobs. Firms have also used these profits to shift major elements of their productive assets abroad in order to set up factories in developing nations where foreign workers earn a fraction of even the stagnant wages in the U.S. This enabled them to further reduce the U.S. work force.  This process has greatly accelerated in the last 20 years, since the mid-1990s.

If Wages Have Been Stagnant Since the mid-1970s, How Could Consumption Remain at 70% of an Increasing GDP or Who Can Buy the Increased Production if Wages are Stagnant?

The answer to this conundrum has three stages.  First, as wages were held constant, families could only increase their standard of living by a worker taking on a second job, or by moving from one paid worker per household to two and even more.  Starting in the 1950s, and then accelerating in the mid-1970s, the labor force participation rate for women increased dramatically from 34%, reaching a peak of 60% in 1999. During this same period the labor force participation rate of males dropped steadily from 86% to 73%. In fact the increase in the overall participation rate from 1975-1999 was entirely due to the increased participation of women.  When that began to hold steady or even decrease a bit (in part as some of the older women began to retire), the overall rate began to drop quickly, reaching 62.8% at the end of 2013.

But once the women had entered the labor force, and wages for both men and women stagnated, something new was needed to sustain any increase in consumption. The financial sector stepped in and began developing new tools to increase consumer debt, especially credit cards.  Soon consumer debt began to increase dramatically, enabling families to sustain and increase their consumption, but at the cost of taking on massive debts at often very high interest rates. As a result the net wealth of most American families fell and for many of them, especially in the minority communities, became negative. On the other hand, the banks enjoyed the resulting new sources of revenue, the manufacturing and service industries enjoyed higher levels of demand and revenue, households enjoyed a higher apparent standard of living, but only by assuming the risks and costs of taking on these massive levels of consumer debt.

But by the late 1990s and early 2000s, this mountain of consumer debt reached unsustainable levels, so something new was again needed to shore up consumer demand, and the financial system came up with a new, dangerous, but temporarily effective device. They invented a wide variety of new types of home mortgages, many of them considered “sub-prime,” meaning they violated the usual norms of safe lending.  Mortgage loans were made at artificially and temporarily low interest rates to consumers many of whom represented what would normally be considered bad risks. As a result, there was an unsustainable increase in the demand for housing which caused a housing price bubble from 2000 to 2007.  Home-owners were encouraged to turn the artificially increased value of their homes into cash to support consumer demand via a whole series of financial instruments such as home equity loans.  This provided a way to sustain and increase consumption based upon nothing more than artificially created higher prices for homes.  But in March 2007, the bubble burst (as many, including this writer, predicted it must and would), and the Great Recession began a few months later. Now, without some new device in place, consumer demand and GDP fell, and unemployment dramatically increased. No such new device has yet to come on the scene domestically, and so the economy limps along, growing at historically low rates with high levels of employment.

Globalization

In the last 20 years or so, economic globalization has been spurred on by dramatically lower international communications costs (via communication satellites, cell phones and the internet), containerization and larger, faster ships which brought shipping time and costs down, internationally linked financial institutions which expedited the global movement of money, and computerization/robotization of production which allowed the rapid spread of productive technology. This has led to the U.S. labor market becoming divided into three new categories.

  1. The financiers, facilitators and organizers of international commerce who have experienced unprecedented increases in their personal income and wealth and in the profits of their corporations, and who have sustained high incomes to those providing  luxury services to them.

  2. Those in the tradeable goods manufacturing and service industries who must compete directly with those in other nations who can and do produce those same goods and services at far lower costs, enabling them to undercut their American counterparts. This results in continuous major trade deficits, and in lost jobs and lower wages in these industries in the U.S. For example, the U.S. lost almost 6 million manufacturing jobs between 2000 and 2009, but has gained back only 568,000 since January 2010. Moreover, since the end of the recession in 2009, manufacturing wages have dropped 10%.

  3. Those in the non-tradeable goods and service industries, who are not in direct international competition.  However, as workers from the tradeable sector are laid off, they often seek employment in the non-tradeable sector, forcing wages there lower and squeezing out many of these workers.

The result is that 80-90% of U.S. workers have experienced stagnant wages, and now, in the aftermath of the Great Recession, families face high levels of unemployment and low levels of labor force participation.  At the same time, those in the first group have enjoyed all the benefits of the growth that has occurred in the form of astronomically higher salaries, income from other sources and vast increases in wealth.

The Growing Schism Between the Rich and the Rest

This schism between the very rich and the rest has been perpetuated and reinforced.  A new Gilded Age has emerged in the U.S., rivaling, indeed exceeding, that of the 1880 &1890s and of the Roaring 1920s.  The richest 1% saw its share of the nation’s income drop from 23% just before the Great Depression to “only” 12% in the 1970s, then turn around to reach almost 24% in 2013. Its share of national wealth has increased to the unprecedented level of more than 80% of all non-residential wealth. Another way to look at this schism is to note that a new study (Fazzari and Cynamon) showed that in 2012 the richest 5% accounted for a new high of 38% of all consumption expenditures in the U.S., which was about equal to what the bottom 80% accounted for at 39%. U.S. businesses have acknowledged this pattern by expanding the markets for luxury goods and services, while cutting back on those for the shrinking middle class and maintaining those for families under economic duress.  To see one aspect of this pattern on the economy, consider that if a rich family buys a car that costs four times as much as a car bought by a middle-class family, production of that expensive car does not generate four times more jobs.  Indeed, that luxury car is likely to be imported and generate no manufacturing jobs in the U.S. at all. A lower-class family can only afford a used car, the purchase of which also generates no additional manufacturing jobs. It is clear that this growing concentration of income, wealth and consumption has a seriously dampening effect on wages and employment.

But this schism is far more than economic.  A major study (Wilson) that focused on European Americans (“Whites”) to abstract from comparisons with the African, Hispanic, and Asian-American communities, found that rich Whites experience totally different lives for themselves and their children than the rest of even White society. Their children go to private pre-schools, elementary and secondary schools that cost tens of thousands of dollars a year, and then go on to elite private universities that cost in excess of $60,000 a year.  They live in vastly different and safer communities, belong to expensive clubs, eat different foods at home and in restaurants, have many servants and house workers, vacation in far different places, and travel extensively internationally.  But perhaps most importantly, the rich, and especially the super-rich, are able (especially given recent Supreme Court decisions) to use their wealth to control much of the political process from the selection of candidates, to elections, to lobbying for laws, to influencing the implementation of laws via control of the regulatory process.  This is often true at the local, state and national level. For example, this political control helped to create the legal climate that was instrumental in supporting corporate efforts to destroy trade unions in the private sector, and is now supporting the attack on public sector unions.

Meanwhile, the poor and near poor, most of whom work full time at very low wages, live desperate lives in often dangerous communities kept from starvation and homelessness only by social welfare programs that are constantly under attack by conservative forces. The official poor account for about 15% of the population and the near poor for an additional 15% to 20%.

But the biggest effect since the mid-1970s has been the plight of the shrinking and ever more desperate middle class. Poverty and near poverty is now growing far faster in the suburbs than in the inner cities.  Official government studies (Census Bureau) reveal that for 3 to 6 or more months in any five-year period fully 80% of U.S. families experience either (a) unemployment or (b) such low wages that they have to turn to social welfare programs to obtain food and/or pay their rent, or (c) are devastated by medical expenses that drive them into bankruptcy or poverty. To the best of my knowledge, no other industrialized democracy subjects such a large proportion of their population to such economic distress. (As noted earlier, Obama’s new health insurance programs will reduce the danger of medically induced poverty and bankruptcy.)

Many of them turn to higher education in an attempt to escape this fate.  But despite financial aid programs for the poorest, relatively few of them graduate from college.  The middle class kids who do not qualify for financial aid must take on massive student loans to get a college education – to the extent that the total student loan burden in the U.S. now exceeds the total of all credit card debt. In fact, student debt increased by 500% from 1999 through 2013, while starting salaries for new graduates dropped by 10%. Repaying these loans severely limits their consumption and home buying for 20 years or more following graduation. All of these factors, as we have seen, have held back socio-economic mobility in the U.S. to the extent that it has become one of the world’s most rigidly stratified industrialized democracies, defying the old myth of American as “the land of opportunity” for those already here – while still being a destination of choice for immigrants from even lower-wage nations.

Does a Solution to These Problems Exist?

The answer is a resounding Yes!  And many economists, sociologists, political scientists, and physical scientists are agreed as to what is needed.  It is a fairly straight-forward seven step program.

1.  Fix the labor market: Set the minimum wage at 50% of the median wage, and adjust it to the inflation rate as we do for Social Security. Change the legal structures to encourage unionization, or at a minimum the creation of German-style worker councils to consult regularly with management on all major decisions.  Restore the relationship between changes in productivity and changes in wages by reestablishing the expectation that they should move about in parallel, requiring firms to justify themselves when that does not happen.

2.  Begin a 20-year program to restore, rebuild and modernize the infrastructure of the U.S.: Civil engineers agree that more than two-thirds of the bridges and overpasses are structurally deficient and urgently need to be repaired or replaced. Highways are in sad shape. There is not one mile of high speed rail for passengers or freight. The old and deteriorating electric transmission grid results in the loss of more than 30% of the energy. A national infrastructure program to address these weaknesses would result in millions of well-paid jobs both in construction and in manufacturing.

3. Modernize the entire energy sector: This starts with a modern and greatly expanded electric transmission grid to get renewable power from where it is best produced by solar, wind, tidal, geo-thermal, or fourth-generation, non-uranium, non-plutonium-based reactors that cannot experience a meltdown that releases radioactivity. Building these production facilities and the grid would generate millions more jobs in both construction and manufacturing, and potentially expand the tradeable goods sector as well. This would also slow climate change and the costs it imposes.

4. Greatly expand and improve the educational system and revise its funding basis:

  • Professional, free childcare facilities for children under age 2 to allow single mothers to work and as a safety value for distressed families are urgently needed.

  • The extraordinary benefits of universal, free, pre-school (age 2-4) education are well documented and urgently needed. (Some claim there is a payback of $12-$15 dollars for every $1 spent.)

  • The standards for teacher credentialing and supervision for K-12 must be massively revised and improved, and the salaries must be raised to attract the best and brightest young people.  Who else should teach the children?

  • The public university system must be seen as an extension of secondary education and provided at no or minimal direct cost to the students.

  • The private colleges and universities, all of whom receive extensive public funding, must be required to educate a broad spectrum of the youth with matching public and private funding to enable those who qualify to attend, and to help qualify those who lack some preparation.

  • The adult education system must be greatly expanded and upgraded to retrain workers for technologically demanding jobs in all sectors of the economy.

  • The student loan program should be replaced with student financial aid grants and this money must be seen as an investment that is at least as important as that in infrastructure.

5.  Implement integrated community revitalization programs to help overcome the ravages of poverty and reduce crime.  Improving the future for poor children (which describes 20% of all U.S. children and almost 50% of minority kids) requires more than just better educational structures.  It requires the development of a complex web of family and youth personal, career and college counseling and support services, anti-gang programs, community-based and focused law enforcement, a penal system that is re-focused on rehabilitation and job training,  and improved housing, recreational and transportation facilities - to name only the most obvious.

6. A greatly expanded public-private partnership must be devoted to both basic and applied research. This is needed to enrich and expand our tradeable goods and services sector to bring down the trade deficit and to generate well-paying jobs.

7. Funding the above six proposals: The needed government money can only come from three possible sources: cuts in other government spending, higher taxes or more borrowing.

(a) Cuts in Government Spending: Over the span of eight years of the Bush Administration and five years of Obama, expenditures on all of the above types of programs have fallen, except during the 18-month period of the emergency stimulus program implemented at the beginning of Obama’s term in response to the Great Recession he inherited.  Non-military discretionary spending of the types enumerated above is now at its lowest levels as a percent of GDP in the last 35 years.  Non-military, non-discretionary (also called mandatory) spending on programs such as Social Security, Medicare (for the elderly), and Medicaid (for the poor) has been expanding, but cannot responsibly be cut.  This leaves only two places to get money: further cuts in military spending and reductions to the subsidies and tax-breaks (reductions) provided to businesses. Indeed, these two areas do provide a potential source of substantial funding. Military-related spending accounts for more than 60% of all discretionary spending.  Tax breaks granted to businesses and individuals amount to more than all discretionary spending combined.  The tax-breaks or tax reductions granted to business amount to more than half of the total. So there is indeed tens of billions of federal spending that could be put to better use.

(b) Taxes: There is a great deal of money, many billions of dollars, that can reasonably and appropriately be secured by a tax system that requires the rich and the near rich, and the corporations, including the banks and other financial institutions, to give back to their society a portion of what they have taken.  [Note – I do not say “earned.”  All of these families and business have built their fortunes using the economic, political and social structures of the U.S. and then they do their best not to pay for these by never missing an opportunity to reduce the taxes they pay.] The nominal tax rate on corporations is 35%, but the effective tax rate is only 11% and many pay no taxes whatsoever.  Similarly, the maximum marginal tax rate on upper class individuals and families is 36%, but most of them pay an average effective tax rate of 10-15%. In addition, a vast amount of business and private income and wealth is hidden abroad and must be brought back or at least taxed.

(c) Government Borrowing:  Borrowing must be seen as an appropriate vehicle to spread the cost of long-term investments over the period of their productivity.  Government investments are not the same as government consumption – the buying of goods and services or the spending of money on benefits that are used and gone at the end of the year. Government investments are expenditures that create assets that generate benefits over a long span of years. Money spent on infrastructure, education and research are such investments. These investments, as a matter of both economics and ethics, should not be paid in advance from tax dollars. The fact is that the rich and near rich and the corporations should be “encouraged” to view these loans to the government (i.e. these purchases of government bonds) as an appropriate vehicle to rebuild and improve their nation. Indeed, most of them will benefit greatly from such improvements. Therefore, they should not view the purchase of these government bonds (for which they will be paid interest) as an act of altruism, but rather as being in their own self-interest. After all, they themselves often borrow money to make long-term investments such as to build a new factory or create a new product. Why should they expect their government not to do the same?

As for the determination of the extent of responsible government annual deficits or of cumulative federal debt, these must be judged on the basis of the deficit or debt’s cyclically adjusted percentage of GDP, not on the percentage of the government budget.  On this basis, there is currently plenty of room for rather extensive borrowing.  The deficit as a percentage of GDP has gone down during every year of the Obama administration from 10.1% in 2009 to 4.2% in 2013, and it is currently projected to drop to 2.3% by 2018.  Given that the economy is still suffering from high unemployment and slow growth, doing the extra borrowing that would instead keep the deficit to GDP in the 3 to 5% range would not be the least bit irresponsible – especially if that money were going to the sort of investments enumerated in #1-6 above.

Finally:  What are the Prospects that Any of these Proposals will be Implemented?

Here I cannot be optimistic at all.  Making and sustaining long-term financial or policy commitments (other than military) is not something the U.S. government seems capable of doing.  It used to be able to do this, witness the Eisenhower Administration’s commitment to a 10-15-year program to build the interstate highway system. But today such a commitment seems politically impossible. Moreover, the ideological forces which are so insanely focused on lowering taxes, deficit reduction and cutting government spending, rather than on increasing social investment and employment, are hardly likely to be overcome by more rational forces.  The rich and the corporations are not likely to allow their tax burden to be increased. Corporations will fight to prevent the needed adjustments in the labor market. The military-industrial-congressional complex (a term coined by Eisenhower) will strongly resist further cuts to the military.  And given these forces’ increasing control over the political process, they are likely to win these struggles.

So the outlook is bleak.  The U.S. economy (GDP) will grow, albeit at a far slower rate than could reasonably be expected, and unemployment will remain considerably higher and wages lower than need be. The labor force participation rate will continue to slip. The poor will continue to suffer; the middle class will continue to shrink and experience economic and social distress. Median household income will continue to stagnate.  In short, while the corporations who profit from globalization will get stronger, and the rich richer, the rest of the economy will largely, and unnecessarily, stagnate.  As Joe Nocera put it (New York Times, Jan 21, 2014) in an article unfavorably comparing U.S. fiscal policy to that of Brazil: “What’s the point of economic growth if nobody has a job?”  Or as Mark Shields (PBS Jan. 27, 2014) put it: “We must decide if people work for the economy or the economy works for the people."  Sadly, these same questions must also be poised to the leaders of many European nations who are too focused on austerity, rather than on the growth of well-paying jobs.

This piece was published in the May 2014 issue of the Dutch journal Streven: A Journal of Political Economy.