It’s easy to get lost in jargon when discussing Democrats’ plans to create jobs. So here’s the key phrase: “from the bottom up.” (More)
Creating Jobs, Part II – The Democratic View
This week Morning Feature looks at the phrase “creating jobs.” Yesterday we examined the Republican view, as expressed by the House GOP caucus. Today we look at the Democratic view. Tomorrow we’ll explore how to talk about jobs with Fred, our archetypal median voter.
When a Nobel Prize isn’t enough….
On Tuesday, Nobel laureate economist Peter Diamond announced his withdrawal from consideration for the Federal Reserve Board. President Obama first nominated Dr. Diamond last April, renominated him last September, and again in January. Each time, Senate Republicans blocked the nomination. A mere Nobel Prize wasn’t enough for Sen. Richard Shelby (R-AL):
Does Dr. Diamond have any experience in conducting monetary policy? No. Does Dr. Diamond have any experience in bank management or supervision? No. … Does Dr. Diamond have any experience in crisis management? No. His academic work has been on pensions and labor market theory.
Those statements are true, so far as they go. The research for which Dr. Diamond won a Nobel Prize addressed “analysis of markets with search frictions,” and he focused on how workers search for jobs and employers search for workers, and how their difficulties in finding each other will affect a labor market. You can watch his Nobel acceptance lecture, but in his New York Times op-ed he explains why that is relevant to monetary policy:
But understanding the labor market – and the process by which workers and jobs come together and separate – is critical to devising an effective monetary policy. The financial crisis has led to continuing high unemployment. The Fed has to properly assess the nature of that unemployment to be able to lower it as much as possible while avoiding inflation. If much of the unemployment is related to the business cycle – caused by a lack of adequate demand – the Fed can act to reduce it without touching off inflation. If instead the unemployment is primarily structural – caused by mismatches between the skills that companies need and the skills that workers have – aggressive Fed action to reduce it could be misguided.
As Dr. Diamond explains, such analysis doesn’t neatly fit ideology:
To the public, the Washington debate is often about more versus less – in both spending and regulation. There is too little public awareness of the real consequences of some of these decisions. In reality, we need more spending on some programs and less spending on others, and we need more good regulations and fewer bad ones.
Analytical expertise is needed to accomplish this, to make government more effective and efficient. Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better. I had hoped to bring some of my own expertise and experience to the Fed. Now I hope someone else can.
While I regret his decision to withdraw, I understand it. That President Obama nominated and twice renominated for the Fed an economist who studies labor theory highlights the Democratic view on jobs. We think an economy grows, or doesn’t …
“From the bottom up.”
The Democratic Party website offers a good summary of how we see jobs. Despite the conservative media narratives, President Obama and Democrats in Congress did focus on jobs. For example, overseas labor is cheaper in part because health care here is so expensive. The 2010 Affordable Care Act has several provisions that will slow the growth of health care costs and make American labor less costly. In 2010, Congress also passed the Manufacturing Enhancement Act and the Small Business Jobs Act. The Wall Street Reform and Consumer Protection Act was also an indirect jobs bill, as it reduces the risk of another job-destroying financial meltdown and offers more credit safeguards for working Americans.
And just this week, President Obama announced a new job training program called Skills For America:
So today, we’re announcing several new commitments by the private sector, colleges, and the National Association of Manufacturers, to help make these partnerships a reality. Through these efforts, we’re going to make it possible for 500,000 community college students – half a million community college students – to get industry-accepted credentials for manufacturing jobs that companies across America are looking to fill. Because the irony is even though a lot of folks are looking for work, there are a lot of companies that are actually also looking for skilled workers. There’s a mismatch that we can close. And this partnership is a great way to do it.
Still unemployment remains stubborn. In part that’s because of the search frictions Dr. Diamond studied and that the Skills For America program seeks to address. In larger part, as Dr. Diamond found and Robert Reich explains, it’s because working Americans can’t afford to spend:
The problem isn’t on the supply side. It’s on the demand side. Businesses are reluctant to spend more and create more jobs because there aren’t enough consumers out there able and willing to buy what businesses have to sell.
The reason consumers aren’t buying is because consumers’ paychecks are dropping, adjusted for inflation. And job losses are mounting. The 83,000 new private-sector jobs created in May represent a net loss because 125,000 jobs are needed merely to keep up with an expanding labor force. The number of Americans filing new claims for unemployment benefits edged higher last week.
As we saw yesterday, the Republican solution is to give still more money to our archetypal wealthy Charles. Reich proposes policies that will give more money to our archetypal working Fred, such as a one-year payroll tax holiday for the first $20,000 of earned income, changing bankruptcy rules for distressed homeowners, and lending to budget-strapped states and cities who are firing public workers. Those policies are good ideas, but I don’t see any except the payroll tax holiday having any chance in the Republican-controlled House.
According to a Wall Street Journal survey of economists, unemployment will likely remain close to 8% next November. Will that doom President Obama and Democrats in 2012, as the mainstream narrative suggests? Not necessarily, according to New York Times statistics maven Nate Silver. The relationship between unemployment rates and reelection of incumbents is not as simple as that.
Tomorrow we’ll discuss why, and how to talk with Fred about jobs.