Commentary / Infrastructure

Sen. Booker’s Federal Jobs Guarantee Act–A Glass Half Full

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By Stuart Rosenblatt

May 30, 2018–Over the past year, a new initiative to guarantee a job to anybody who wants or needs one has been making its way through progressive Democratic Party circles, and provoking a debate on what a competent jobs program should be.  Sen. Cory Booker’s (D-NJ) bill, The Federal Jobs Guarantee Development Act  (S. 2746), has been co-sponsored, or echoed, by Sen. Kirsten Gillibrand (D-NY), Sen. Bernie Sanders (I-VT), and others.  This bill is drawn from a variety of academic studies and the debate emanating from the proponents of a Modern Monetary Theory (MMT).

Booker’s legislation grew out of a series of policy papers and discussion pieces that were concretized in the March 9, 2018 paper from the Center on Budget and Policy Priorities (CBPP), “The Federal Job Guarantee—A Policy to Achieve Permanent Full Employment.” Co-authored by Duke Postdoctoral Associate Mark Paul, Duke Professor of Public Policy William Darity, Jr., and Darrick Hamilton, Professor of Economics and Urban Policy at the New School for Social Research, this report constitutes the best elaboration of the proposed legislation, and this commentary will use this paper as its touchstone.

Sen. Booker's Federal Jobs Guarantee Act--A Glass Half Full

The demand for decent-paying jobs is growing across the nation.

The CBPP statement makes a convincing case for the immediate implementation of a full employment package, which will finally address the crying need to alleviate the underemployment and actual unemployment which has been dragging the nation further into the abyss.  It proposes to create nearly 11 million new jobs, a significant amount of which would produce physical wealth, at a pay scale that would bring millions out of desperate poverty. There are major flaws in the proposal, but overall its intent is on target: to revive the successful work of the Franklin Roosevelt New Deal, especially the Works Progress Administration (WPA), the Civilian Conservation Corps (CCC), and related programs.

However, the CBPP policy proposal fails to address the crucial issues of the collapse of productivity, the failure to fully upgrade our infrastructure, and the urgent need for a massive science driver program.  To lift the overall standard of living and development above the apogee of the Kennedy Space Program, achieved in 1972, a “crash program” approach is urgently needed.  In that context, the full employment initiative would be a crucial adjunct. But an adequate program require a big impetus from the Federal government, and, as AmericanSystemNow.com has been emphasizing, the creation of a new National Infrastructure Bank, to force-feed funding into upgraded infrastructure, a bold invigoration of the space program, and other science projects.

FDR’s Economic Bill of Rights

The CBPP paper calls for finally implementing the jobs policy which Franklin Roosevelt and Harry Hopkins, who ran FDR’s jobs programs, wanted from the beginning of the New Deal. Hopkins, Labor Secretary Frances Perkins, and Roosevelt wanted the WPA or a similar entity to oversee a permanent government policy to guarantee a job to anybody who needed one.  The paper acknowledges that FDR was convinced that free market policies would not necessarily provide the job security Americans sought during the Depression.  Nor could the private sector be trusted with this responsibility.

FDR watched the recovery grow in very halting ways, with private businesses, banks, and even local governments playing at best a wait-and-see game of whether to invest in economic expansion.  It was only Federal government intervention that ultimately lifted the nation out of the economic crisis.  The authors, and proponents of Modern Monetary Theory such as Stephanie Kelton, cite the 1944 FDR State of the Union Address as their launch point.  In that speech FDR said that “the American Revolution was incomplete and that a new set of rights—economic rights and rights analogous to Nobel Laureate Amartya Sen’s more recent conception of human capabilities—was necessary to finish it,” the CBPP  reports. (CBPP paper, p. 4)

The first article of what was dubbed FDR’s Economic Bill of Rights was the right to employment.  The second was the right to earn enough income to lead a life of dignity.  FDR said that “physical security… economic security, social security, moral security” lay at the heart of the new American Revolution.

Sen. Booker's Federal Jobs Guarantee Act--A Glass Half Full

FDR’s 1944 State of the Union featured a call for this program.

The CBPP paper reviews the New Deal programs of 1933-38, which launched a massive infrastructure program to repair and rebuild the industrial core of the nation.  Its success was overwhelming, and the report praises the fact that the WPA, CCC, and other employment programs provided good jobs, and generated increases in real productive output as well as increases in productivity.  As is well known, the WPA and its related agencies built hundreds of new bridges, dams, and airports.  It built over 650,000 miles of new roads, 39,000 new schools, 1,000 new or refurbished airports, 4,000 new utility plants, and many other facilities too numerous to name here.

The authors also cite the accomplishment of the WWII economic mobilization as the only time in recent U.S. history that the real unemployment rate dropped to 1.7% (between 1943 and 1945).  The war mobilization was the period of the nation’s most robust growth in real productive output, new infrastructure, and growth in Total Factor Productivity (productivity driven by new technological advances).  During the war mobilization, TFP grew at 3-5% per annum, and GDP rose over 10% per year, along with standards of living.

FDR proposed a Full Employment bill to Congress in 1945, but it failed to pass; a watered-down version was enacted in 1946.  It was the Civil Rights movement which took up the mantle in the early 1960s.  Dr. Martin Luther King, Jr., Bayard Rustin, and Coretta Scott King all championed a universal jobs program, and the Poor People’s campaign of 1968 had this policy at the center of its demands.  The campaign called for spending $1 trillion to rebuild the nation, and provide meaningful jobs for all.

Sen. Booker's Federal Jobs Guarantee Act--A Glass Half Full

Martin Luther King’s Poor People’s Campaign

The final major attempt to realize this policy was the 1978 Humphrey-Hawkins Act, drafted at the behest of Civil Rights leaders, including Coretta King.  It gave the Federal Reserve its now-dual mandate to address both unemployment and inflation, but this was never implemented.

The Federal Jobs Guarantee Development Act

The proposed new full employment act would hire anyone who needed a job, full or part-time, at non-poverty wages.  Jobs would pay $11.83 per hour, which would equal $24,600 per year for full-time employees, the equivalent of today’s poverty rate for a family of four. It would index the wage scale to inflation, thus ensuring that purchasing power was not diluted.  By adding regional and local wage and living standard variations, the program would arrive at $32,000 as the mean wage level.  In addition, the program would provide benefits, especially health insurance, for all those working full-time.  So the government would be spending well above just the wage on each employee.

The new proposal addresses certain big issues never addressed before.  It would eliminate involuntary unemployment through a government-backed hiring institution.  It calls this new agency the National Investment Employment Corps (NIEC).  It would create a true floor in the labor market, as it would guarantee a living wage with benefits for all participants.  It would eliminate working poverty, and improve workers’ livelihoods.  It would also restore state and local tax bases, while stabilizing the labor market during downturns or recovery periods

The Booker bill summarizes the kinds of jobs that would be funded as follows:  “repair, maintenance, and expansion of the nation’s infrastructure, housing stock, and public buildings;  energy efficiency upgrades to public and private buildings;  ecological restoration;  community development projects;  preschool and afterschool services ;  provision of teachers’ aides;  provision of elder care, rejuvenation of the postal service, support for the arts, and other activities that shall support the public good.”  (CBPP report, p.  7)

Sen. Booker's Federal Jobs Guarantee Act--A Glass Half Full

CCC workers digging a drainage channel. (U.S. Forest Service)

The NIEC program summary also raises several red flags.  First is the relationship of the NIEC to the Federal Reserve.  The authors note that the Fed has historically been concerned with monetary policy, not unemployment, and will always come down on the side of the former, irrespective of the consequences.  Yet the authors argue that the Fed’s control over monetary policy will never do serious harm, and that its historical bias will be ameliorated by the existence of the NIEC as a counterweight.  That is certainly a pipedream, especially in light of the Fed’s role in facilitating the massive financial crash of 2008, and the looming crash straight ahead.

Second, the authors admit that the hiring program may take two to three years to really crank up, as much of it is geared around localities and their vicissitudes.  They say that since unemployment numbers overall are low, that will make things stickier.  Yet they correctly note that real unemployment is far higher than 3.9%, and that there are at least 11 million people who could benefit from the program.

The authors also admit that, because of the mooted technological composition of the jobs to be created, the multiplier effect in the private sector will be relatively low.  For every direct job created by the program, only .26 jobs will be created in the private sector, according to the CBPP study.  This compares unfavorably to a pure infrastructure program, where the multiplier effect is 1.8%, as outlined in a report prepared by Josh Bivens at the Economic Policy Institute in 2014.  The potential of an infrastructure program was further underscored by recent testimony of the Electrical Contractors Association at an April 25 hearing of the House Small Business Committee, where the witness stated that for every $1 billion invested in infrastructure programs, 28,000 new jobs would be created in related industries and suppliers.

Program Benefits and Costs

According to a graph provided by the CBPP report, the Guaranteed Jobs program could generate 10.7 million new jobs, of which 9.7 million jobs would be full-time equivalent (FTE), dropping the real unemployment rate to 1.5%. The average wage would be $32,500, and after factoring in other costs, the average cost per job would be $56,000.  They estimate that the total cost of the program would be $543 billion per year.

The authors also project that the NIEC would radically reduce the costs of other government social safety-net programs.  Unemployment insurance costs would radically decline; the program currently costs the Federal government $33 billion per year. The Earned Income Tax Credit would be transformed as many more workers would be making a far larger income.  The EITC costs the government $70 billion annually and much of that would be saved.  The cost of the Supplemental Nutrition Assistance Program (SNAP) would also be reduced from its current $73 billion, as well as costs for Medicaid ($368 billion/year) and the Children’s Health Insurance Program ($14 billion).

There would be other savings, plus an unspecified increase in productivity, as a significant portion of the jobs would be created in areas of infrastructure.

The paper makes very few funding proposals in addition to projecting the savings outlined above. It notes that, with the rise in real wages, many public assistance programs at the state and local level will see distinct savings.  It also proposes a financial transaction tax (FTT), a tax on stock market trades, which could generate a significant amount of income.

Sen. Booker's Federal Jobs Guarantee Act--A Glass Half Full

Maglev trains, like this one in Shanghai, will be an essential feature of rebuilding American infrastructure. (youtube)

One problem with the transaction tax, which could generate $50 billion to $75 billion annually (not an insignificant amount), is that it is already pledged to a variety of programs, according to various progressive think tank proposals. The FTT is expected to pay for universal health care, national infrastructure investments, and many other projects.  Frankly, there is not that much to go around—and there would be even less when the necessary banking reforms were put in place.

The strength of the Jobs for All proposal is that it is an intentional echo and fast-forward of the Roosevelt New Deal jobs programs, which were extremely successful in providing work and physical improvements in the economy. But the New Deal programs were insufficient to  stem the industrial collapse that pervaded the economy well into 1939.  It took the massive WWII industrial mobilization to completely lift the nation out of its misery.  That effort not only took the economy to full employment, but it generated whole new levels of technological progress, driven by across-the-board science driver programs, the most famous of which was the Manhattan Project.

For a fuller discussion of the World War II mobilization, click here.

Toward a Full Recovery and Jobs Program

As this blog has continually promoted, a full-scale recovery today must entail a major commitment to rebuilding the infrastructure of the nation, while at the same time implementing bold scientific programs to force-feed new technologies into the system.

The real issue is not jobs, nor full employment, nor wages, nor even eradication of poverty per se, although all of these are crucial markers for a successful economic paradigm.  Real economics begins with understanding the physical economy as a unified national system.  The emphasis on physical economy, measured by increasing rates of increased productivity, is all that is real, and this process is driven by creative scientific discoveries. Financial impetus is needed to “grease the skids,” so to speak, to provide the credit for the process. But money per se is not determining.  One must deal with the physical economy as a single organism, and adopt policies which will result in increasing rates of energy throughput, measured by exponentially growing energy flux densities (see chart).

Sen. Booker's Federal Jobs Guarantee Act--A Glass Half Full

Comparisons of power sources in terms of energy flux density.

A growing economy has two interconnected elements:  an ever modernizing infrastructure platform, upon which the industrial body and living standards can develop; and science driver programs which create continuous breakthroughs of a qualitative sort, and feed ever more powerful technologies into the physical economy.  The increase in these technologies results in increasing rates of Total Factor Productivity.  TFP is the best measure of productivity in the economy, as it accounts for the impact of the new technologies on the overall process.

As the chart below, developed by author Robert Gordon in his book The American “Special Century” of Economic Progress, 1870-1970, demonstrates, TFP grew dramatically in the New Deal of the 1930s and “took off” during the war mobilization of the 1940s.  By contrast, over the last five years, productivity has grown less than .5% per year, anemic at best.  While a jobs program is absolutely necessary, not just any jobs will turn the tide. There must be an emphasis on jobs contributing to a new infrastructure platform, which would include high-speed rail and magnetically levitated trains, wide-scale use of desalination plants, nuclear fission to power the rail and desalination, and modern ports, airports, and other infrastructure. This will require associated educational programs for the workforce as well.

Sen. Booker's Federal Jobs Guarantee Act--A Glass Half Full

Innovation soared during the WWII economic mobilization.

Our economy also needs an aggressive space exploration program ( i.e., interplanetary infrastructure!) and advanced scientific projects, including nuclear fusion development, isotope separation, and related technologies, etc.  The atom-splitting program of the 1940s resulted in major breakthroughs in medicine, electric power, petrochemicals, and other areas of the civilian economy, even while driving the WWII buildup.  The space program of the 1960s drove the U.S. economy upward for 20  years and generated major breakthroughs in technology from medicine to computers.

Once that context is established, the proposed jobs-for-all policy can mesh with the new infrastructure driver. New jobs can be created as part of the new rail, power, water and other systems being erected.  Many of the jobs will initially be in repair of existing systems, but many will be in the new programs.  This will enhance the productivity of the overall effort.  Merely “putting people to work” will consume the output by simply maintaining existing systems, at best, but will not contribute to the necessary leap in productivity needed to rescue the economy.

In addition, the nation needs new “missions,” not just jobs.  One of the biggest causes of the rampant drug and opioid crisis is the loss of a sense of purpose in the population. People have given up, and despair of the future. Instead they have turned to drugs, violence, and suicide.  We are a dying people, a nation without a purpose.  The last successful mission that we accomplished was President Kennedy’s challenge to, “before this decade is out, [of] land[ing] and return[ing] him safely to the Earth. “

Funding the Recovery

As for financing such a bold policy, the Federal Job Guarantee program falls short. It correctly notes that many social safety net programs will see significant savings, as good, high paying jobs are created.  But the total cost of $543 billion annually for the NIEC nearly rivals the defense budget ($629 billion) and Medicare ($590 billion). To cover it, we must not only ensure that the government money is going into funding productive activity, but we must have a source of credit.

Sen. Booker's Federal Jobs Guarantee Act--A Glass Half Full

The Bank of the United States, established by Hamilton in Philadelphia.

This blog has been actively promoting the creation of a Hamiltonian National Bank for Infrastructure and Industry.  That proposed bank, in the tradition of the great national banks that have helped build this nation, could be capitalized for $3-4 trillion, using existing long-term Treasury debt and municipal debt exchanged for preferred stock into the National Bank.  Other investors could also invest in the federally insured bank.  Interest on the stock in the bank, all that the bank is obligated to cover, could be as little as $80 billion per year!  That bank could employ millions at high wages, building the projects we urgently need, and could partner with the Federal government to employ the ten million or more targeted by the NIEC, but as part of a coordinated effort.  Thus the funding for the bank could likely absorb much of the cost of the NIEC, and increase the output by a joint effort.

Franklin Roosevelt used the Reconstruction Finance Corporation as a national bank to do just that.  The RFC worked hand in hand with the WPA and the other New Deal institutions in one collaborative effort.  That is how we beat the Depression and won the world war.  It worked then, and it would work today.

 

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