Congress has coughed up seven-hundred billion dollars so far to cover the bad bets made by the high-rolling denizens of Wall Street. Henry Paulson and Ben Bernanke have managed to scrape up a few hundred billion more here and there to shore up and bail out companies they deemed to be “too big to fail.” Despite the infusion of this tsunami of taxpayer and governmental largess, the stock market is still in free fall because investors realize that we are in the early stages of a recession that threatens to become a second Great Depression. The actions taken by Congress and the present administration address the effects and the most proximate cause of the current financial crisis (the dramatic increase in the number of bankruptcies and foreclosures), but do very little to address the root cause - job loss.
Now, in an attempt to address public anger related to The Great Wall Street Rescue Mission, there is discussion among our elected representatives about cutting taxes or sending out another round of stimulus checks. While these measures may enable over-extended debtors to make ends meet or credit-starved consumers to go on one last spending spree, we need to realize that we can not consume our way out of a crisis that was created, in large part, by over-consumption. We need to work our way out. We need to put a solid foundation under our economy by putting every able-bodied worker to work.
The loss of jobs due to outsourcing, downsizing, and a faltering economy was the first domino to fall in the present financial crisis. Putting people back to work will reduce the number of foreclosures and give newly employed workers the means necessary to rent or purchase some of the houses that are now sitting empty. The private sector is not going to create jobs in the face of a serious, possibly long-term, downturn in our economy. The government is going to have to step in, as it did during The Great Depression, if we hope to reverse the downward spiral of job losses and avoid a serious recession.
In an essay in Newsweek George Will quotes, approvingly, the response of a fictional Republican candidate for president on NBC’s “The West Wing” to the question “How many jobs will you create?” His response: “None. Entrepreneurs create jobs, businesses create jobs. The president’s job is to get out of the way.”
It is true that entrepreneurs and businesses create jobs when they believe that economic conditions are such that they will realize a reasonable profit from starting or expanding a business. On the other hand, when economic conditions lead them to experience or expect lower profits, or monetary losses instead of capital gains, businesses don’t create jobs, they shed them. Working with Congress, a president in such a situation should take up the slack and find meaningful employment for people who are unable to find work on their own.
In the Capitalist Bible (more commonly known as An Inquiry into the Nature and Causes of The Wealth of Nations) Adam Smith’s prescribed a laizzez faire approach to the economy on the part of the government because he felt that workers would, if left alone by the government, do whatever work would create the most wealth for themselves. Collectively, this would lead to the greatest possible accumulation of wealth within a nation.
Smith wrote at the dawn of the Industrial Revolution. When Wealth of Nations was published (1776) 97% of the people in the United States lived and worked on farms and produced nearly everything they needed themselves. A person’s standard of living was tied directly to how hard he or she worked and nearly everyone was “self-employed.”
In the wake of the Industrial Revolution, mechanization, along with the principle of division of labor, and the specialization that results from it, have made us highly inter-dependent. Very few people are self-sufficient or self-employed. We are highly dependent upon the business community, both large corporations and smaller businesses, to provide employment. When young adults leave school and enter the work force, or older workers are laid off, most of them think in terms of “finding a job.” Very few think in terms of starting a business. We look to existing businesses to provide employment for us, but business owners and managers are driven by the profit motive, creating and providing jobs is simply a by-product.
Adam Smith’s famous “invisible hand,” its movements dictated by the immutable laws of supply and demand, takes away jobs as readily as it creates them. Markets operate quite efficiently for those involved, while leaving any number of people out of work. At the present time, as the prospects for profit dim for most industries, more and more people are finding themselves out of work and unable to find work. The downward spiral of recession has begun.
As George Santayana famously remarked, “Those who cannot remember the past are condemned to repeat it.” We keep hearing that this is “the worst financial crisis since the Great Depression” and yet our political leaders don’t seem to remember the curative power of alphabet soup. The various jobs programs of the “New Deal” (the WPA, PWA, and CCC) were quite effective in ameliorating the effects of The Great Depression and eased the suffering of millions of people in the bargain.
Franklin Roosevelt never fully bought into Keynesian economics and his jobs programs stopped short of achieving full employment. As a result, economic conditions improved, but it took our entry into World War Two to finally put an end to both joblessness and The Great Depression.
After the war Congress, worried that unemployment resulting from the shift back to a peacetime economy would send our economy back into a depression, passed the Employment Act of 1946 (typically referred to as “The Full Employment Act”) which stated that “it is the continuing policy and responsibility of the Federal government to use all practicable means . . . to foster and promote . . . useful employment opportunities, including self-employment, for those able, willing, and seeking to work.” Right there, in a bill passed by the seventy-ninth Congress and signed into law by President Truman over sixty years ago, is the key to an effective and equitable solution to our current economic crisis.
The “Full Employment Act” stopped short of guaranteeing everyone a job. That would require making the government the employer of last resort. It’s time to take that step. To paraphrase the welfare reform of the 1990s, we need to end unemployment as we know it. Paying able-bodied workers to sit home and do nothing when there is work to be done is inexcusable. It robs the workers of their dignity and shortchanges taxpayers in the bargain.
According to the latest report from the Bureau of Labor Statistics, 9.5 million people were unemployed nation-wide in September of 2008. For less than half the amount authorized to bail out Wall Street and financial institutions we could put every one of those unemployed people to work for a year at wages or salaries averaging $35,000.
A few members of Congress, including Senator Obama, have mentioned putting people to work on infrastructure and energy-related projects. There is a clear need for some public works projects to be undertaken at the present time. Our nation has a crumbling, outdated infrastructure and a dire need to implement an energy policy that includes speeding the development of new sources of energy.
Our government can reduce unemployment significantly by simply putting people to work on these projects that desperately need to be done, but we need to move beyond these obvious examples and develop a much broader range of opportunities to provide meaningful employment for those unable to find jobs on their own. Even the standard example, often given as a criticism of “make work” projects - digging holes in the morning and filling them up in the afternoon - could be made meaningful today if we combat global warming by having the workers involved plant a tree in between the digging and the filling in of the hole.
Putting people to work will increase our GDP and give taxpayers some benefit in return for their money. Achieving, or even approaching, full employment will pay for itself, at least in part, by leading directly to reduced pay-outs for unemployment benefits and other forms of welfare. There is plenty of work to be done. It’s time to limit the size of the cast of “American Idle” to those who are truly unable to work.
Putting people to work is the key to avoiding a deep and lengthy recession and helping individuals turn their financial fortunes back in a positive direction. Given jobs that pay a decent wage, many of the individuals who are in over their heads financially could eventually work their way out of debt and hold onto their homes, or a less expensive home, in the bargain. People who have already gone bankrupt, or lost their home, as a result of job loss will reenter the market to buy or rent a house when they find work. Slowing the tidal wave of foreclosures and increasing the demand for housing will halt the erosion in the value of houses, which will stabilize the value of the mortgage-backed securities (“collateralized debt obligations”) whose decline in value triggered the present financial crisis.
Creating jobs and adjusting the terms of mortgages held by homeowners who are capable of paying off a mortgage if the terms are renegotiated will take more time and effort than simply buying up the “bad paper” Wall Street has generated, but working from the bottom up in these ways is a more effective and a more equitable means of avoiding a second Great Depression than bailing out the fat cats and hoping some of the benefits trickle down. The belatedly risk-averse gamblers who have converted Wall Street into a casino can then decide for themselves whether they should sell out now at fire-sale prices or give the “buy and hold” strategy a chance to work.