Last week, when the president’s tax cut deal with Republicans was all but done, I wrote that the Democrats and progressives risk moral failure if we do not meet the moral obligation the tax cut deal would create. Now the deal is well and truly done -- passed by the House and the Senate, and signed by the president. It’s time to look at the nature of that moral obligation and what it will take to truly meet it.
An Investment Agenda For America
Looking ahead, towards the passage and signing of President Obama’s tax cut deal with conservatives, I suggested the nature of that moral obligation and what it would require of us.
Let’s be clear about what we’re doing. By extending the worst economic policy of the Bush/conservative era -- tax cuts for the wealthiest one to two percent -- without even so much as discussing the kind of direct investment in job creation and economic growth needed for a recovery that would have real meaning for millions of Americans whose fortunes rise and fall on Main Street, not Wall Street, we are setting America up for its next failed conservative stimulus.
But beyond that, whether as Democrats or progressives, we are setting ourselves up for moral failure if we do not meet the inherent moral obligation this "tax deal" creates, and let the discussion end with the extension of the same tax cuts that have consistently failed to stimulate growth and create jobs. If we fail to make the case for and demand direct investment in jobs and recovery, we will be complicit in sticking America with a deal that belongs in the same category as one that Sen. Carl Levin (quoting a Goldman Sachs email) aptly described, while grilling the former head of Goldman Sachs’ mortgages department, as a "shitty deal."
If we believe America deserves better, we’d better be willing to fight for it or be held accountable for failing to fight for what we say we believe is right.
Our political leaders -- Democrats and Republicans -- are focused either on policies and deals that will not create jobs, or cuts that will actually destroy jobs. Given these circumstances, there are certain ground truths that bear repeating, but not because doing so will change the outcome any longer. The deal, after all, is done. These truths make it plain that this deal was made more for political reasons than economic. While there is room for debate about which side -- the White House or the GOP -- got more out of the deal, it’s clear that Americans caught in the vise grip of the recession will get little out of it, as there is little in it that’s likely to spur job creation or economic growth.
The willful ignorance regarding tax cuts on both sides suggests the deal was driven by what each side thought would give them a political "win" to spin to their advantage. Evidence shows that tax cuts -- and the painful cuts that seem already queued up to be inflicted upon million of Americans -- are not what the economy truly needs right now.
In my previous post I explained why extending the Bush-era tax cuts for the rich -- even with "sweeteners" like the extension of middle class tax cuts, and the extension-of-the-extension of unemployment benefits to 99 weeks (but not for those Americans unemployed beyond 99 weeks) -- was more of the same failed conservative "stimulus" that has not created jobs or spurred economic growth. To summarize here:
- Tax cuts are the least effective way to stimulate job creation and economic growth, according to the Congressional Budget Office. Of nearly a dozen different methods examined by the CBO, tax cuts offered the least "bang for the buck."
- George W. Bush had the worst track record on job creation since such records have been kept. (Only Gerald Ford and George H.W. Bush had worse records.) The result was a decade of zero job growth.
- The rich don’t spend tax cuts, according to Moody’s. During the previous decade, tax cuts boosted the incomes of the wealthiest Americans but did not translate into economic growth, because the wealthy are more likely to save than spend money from tax cuts. Income increased for the wealthy in the previous decade, even as income fell for the rest of the country, but for the most part the rich didn’t spend their added income on goods and services and thus put it back into the economy. Instead they were more likely to save it, or invest it on Wall Street or in emerging markets abroad -- none of which resulted in jobs being created here.
If our goal is to not merely reduce unemployment, but lead in building the new economy that will emerge from this crisis, cutting will not get us there.
Investment & Government’s Role
Leading in building the new economy requires investment. Specifically, it requires direct government investment in putting people back to work. It requires investment sufficient to address a crisis the size of the one we now face.
This is not "make-work" or "busy work", but work the country urgently needs done. It offers us a chance to shape the new economy, instead of being carried along by events.
By failing to invest in direct job creation, our leaders are taking a "do nothing" approach to shaping the new economy. Doing nothing -- and yes, tax cuts amount to doing nothing, given their track record -- will yield an economy in which the "new normal" is a permanently lower standard of living for millions of Americans.
We can chose a new economy that means good jobs for Americans, but cutting won’t get us there. If we want it, we have to build it. If we are going to build it, we have commit to investment in putting Americans to work, preparing Americans to work in the new economy, and supporting local economies until recovery is sufficient to spark hiring in the private sector.
Investment can create jobs and stimulate economic growth. Dave Johnson pointed to Germany as one example of how direct government involvement and investment can work. But right now America doesn’t invest nearly enough. The U.S. ranks 27th -- nearly last -- among other developed countries in investment in education health care in and other "vital social needs".
Here is a clear role for government. There are "vital social needs" that must be met in order to "promote the general welfare" (a notion almost exclusively embraced by progressive now, conservatives having all but abandoned the idea of a common good). Where "promoting the general welfare," is necessary but not profitable, government has an opportunity, and even a duty, to "do something" -- to invest.
Investment also has a clear advantage over tax cuts for the rich. Government can mandate how its investments are used. Government can target its investments to have the greatest impact where there is the greatest need, and hold those responsible for administering those investments accountable for outcomes.
Government cannot mandate how most money from tax cuts is used. The rich don’t have to spend their tax cuts. They are not required to invest their tax cuts back into the economy. The most the government can do after cutting taxes for the rich is to "hope for the best."
America doesn’t have the luxury of merely "hoping for the best." The size and potential long-term effects of the economic crisis demand direct investment in job creation and economic growth, based on evidence of what is most likely to work.
We can start building the new economy by investing in repairing, restoring and rebuilding our national infrastructure. Not spending on infrastructure means passing on a cost to generations to come. Nothing ever gets cheaper to fix the longer we wait to repair it. Our infrastructure is in desperate need of repair. (Almost any American who drives to and from work knows this on some level.)
- Thirty-three percent of U.S. roads are in poor or mediocre conditions.
- Poor road quality is a major factor in congestion and traffic accidents.
- Americans spend more than 4 billion hours a year stuck in traffic costing more than $78.2 billion a year in wasted time and fuel costs.
- About 12 percent of our nation's bridges are structurally deficient, and about 16 percent are functionally obsolete. The day-to-day impact of faulty bridges comes in traffic delays, congestion, detours for commuters, and the routine rerouting of trucks and emergency vehicles.
These few examples illustrate extent of our infrastructure needs, and the cost of continuing ignore them. Plus, as Ezra Klein explains, it has never been cheaper to invest in infrastructure than it is right now in terms of labor and materials. And in many cases investment in infrastructure can lower unemployment among workers -- construction workers, for example -- who have extremely high levels of unemployment.
In a Labor Day speech that kicked off the midterm elections campaign season, President Obama called for a $50 billion investment in transportation infrastructure. Central to that plan was a federal infrastructure bank that would pool tax dollars with private investment. The idea was supported by officials including Gov. Arnold Schwarzenegger (R-CA), Gov. Ed Rendell (D-PA) and New York City mayor Michael Bloomberg. Rep. Rosa DeLauro developed a bill that would create an infrastructure bank as part of the Treasury department.
The president first embraced the idea of an infrastructure bank as a senator, but the idea goes back at least as far as 1926, when a bill was introduced in the Senate to create such a bank. How an infrastructure bank would work would probably be the subject of extensive debate. Its resources and investments could be targeted at those states with the highest rates of unemployment -- say 10 percent or more -- or those states could have priority to receive funding for projects that meet investment criteria.
An infrastructure bank may be an idea whose time has come. While it will take work to determine how such a bank would work, it should be part of any real plan to create jobs and preserve existing jobs.
Where an infrastructure bank leaves off, investment in preserving and creating local jobs can make a difference for millions of Americans. In May of this year, Rep. George Miller (D-CA, 7) introduced the Local Jobs for America Act, to save and create local jobs through the retention, restoration, or expansion of essential services in local communities. It’s another resource ripe for use in building an investment agenda for America.
The bill, which remained in committee, would invest $75 billion to help local communities continue to provide vital services that more and more local governments are cutting or eliminating altogether, due to the recession. It includes money to: keep teachers in classrooms across the country; put law enforcement officers on the beat; retain, rehire, and hire fire fighters. Over two years, the bill would put another 750,000 Americans to work in the private and public sectors, providing services to meet essential needs that have grown as a result of the recession.
Miller said his bill would directly save or create 1 million jobs. Indirect job creation would also occur as families have money to spend in local businesses. As Matt Yglesias pointed out, small businesses need customers if they’re to create jobs. The "stimulus" from this type of investment may do more than any tax cut to help small businesses that, more than anything else, need more customers coming through their doors with money to spend. The potential impact could spread from there to local governments, which would no longer have to chose between retaining services or raising taxes, as people return to work and turn from benefit collectors into tax payers.
As noted in our report with The Workforce Alliance, "The Bridge to a New Economy: Worker Training Fill the Gap," as the economy recovers many of the newly created jobs will be "middle skill" jobs requiring significant education and training -- or re-training, for unemployed workers.
As the economy recovers and begins generating jobs again, it is vital that workers have the skills they need to maximize opportunities. Many newly created jobs will be "middle skill" jobs such as nurses, welders, and database managers. These occupations require significant education and training beyond the high school level but not a four-year degree. Educating people to plug the gap and fill these middle-skill jobs is critical, especially for low-skill workers to take advantage of emerging job opportunities, and for businesses to grow with the skilled workforce they need.
To turn today's crisis into tomorrow's opportunity, we must then make sufficient investments in a national skills strategy that brings the federal workforce development system to scale and ensures that all workers have access to the education and training they need to prosper. For too long, federal investments in workforce development have been in decline, placing a significant financial burden on employers and leaving behind those individuals who could benefit the most from skills training.
One of the most important investments we can make right now is in American workers themselves, to ensure that the unemployed acquire the skills they will need to get jobs in the new economy. This is another area in which government may need to take the lead, until the economy recovers enough for private sector employers to see the benefits of investing in worker training. Whether it takes the form of prioritizing federal funding for programs that offer training and education to "non-traditional" students and working adults, partnering with community colleges and community based organizations, or strengthening and reauthorizing legislation like the Workforce Investment Act, investing in our workforce is imperative and essential to an investment agenda for America.
Investment in local job preservation, job creation, and job training could also prioritize states with the highest rates of unemployment. In most cases, those same states will have also have the greatest need for services. Saving and creating local jobs -- and training our workforce to succeed in the new economy -- should be part of any investment agenda for American, and in this case it may just involve refining and finishing work already begun.
The most glaring omission in the tax cut deal between the president and the GOP is the lack of any aid or support for the long-term unemployed -- the 99ers, or those Americans who have exhausted their 99-week emergency extension of unemployment benefits. Republican lawmakers seemed confused during and after the debate over the deal, about how it handled unemployment benefits. Orrin Hatch stood out among Republicans in his failure to understand the provisions for unemployment benefits, claiming the deal extended them "well over 100 weeks," but he was hardly alone.
Note that Hatch believes unemployment aid is now "well over 100 weeks." That’s patently false, and suggests Hatch went on national television to rail against a policy — one that’s been debated for months — without an understanding of the basics.
But what’s frustrating is how routine these errors are. Sen. John Barrasso (R-Wyo.) recently blasted an extension, saying the benefits are intended to help those "who have been collecting unemployment benefits for 99 weeks." But that’s not even close to being true. Similarly, Rep. Michele Bachmann (R-Minn.) said an extension would add 13 weeks to a 99-week limit, which isn’t the policy at all. Huffington reported recently that other Republicans have struggled with the difference between extending benefits and reauthorizing benefits.
It’s one thing to have a debate with someone on the right, and run into ideological differences. But one can’t even get to the debate if one side struggles to understand the introductory details of the subject at hand.
Is it too much to ask that Republican lawmakers, responsible for helping shape federal policy, do a little homework?
The final version of the tax cut deal extends for one year the extension of unemployment insurance benefits to 99 weeks, and makes no provision for Americans unemployed beyond 99 weeks. Not only does this mean there is no help for unemployed Americans who have already exhausted their unemployment insurance benefits, but none for those American who almost certainly will do so in the near future, if the economy simply continues to create jobs at its present rate.
Not only does the tax cut deal abandon the long-term unemployed -- with its combination of tax cuts that have failed to create jobs and, failure to extend unemployment benefits beyond 99 weeks -- but it also abandons communities with high long-term unemployment. This is incomprehensible, given that we know unemployment benefits are an important economic stabilizer for families and communities.
Even as we learned in September that a record 44 million Americans now live in poverty, we also learned that unemployment benefits can help keep people out of poverty. While America added 3.8 million to the ranks of the poor, unemployment benefits kept 3.3 million people out of poverty in 2009. Keeping in mind that benefits average about $300 per week, it’s clear that for many families unemployment benefits are a lifeline that has kept them just this side of poverty.
In addition to the benefit of keeping more Americans from descending into poverty, unemployment benefits act as an economic stabilizer for communities, according to a study commissioned by the Department of Labor during the Bush administration.
The study found that UI benefits:
- reduced the fall in GDP by 18.3%. This resulted in nominal GDP being $175 billion higher in 2009 than it would have been without unemployment insurance benefits. In total, unemployment insurance kept GDP $315 billion higher from the start of the recession through the second quarter of 2010;
- kept an average of 1.6 million Americans on the job in each quarter: at the low point of the recession, 1.8 million job losses were averted by UI benefits, lowering the unemployment rate by approximately 1.2 percentage points;
- made an even more positive impact than in previous recessions, thanks to the aggressive, bipartisan effort to expand unemployment insurance benefits and increase eligibility during both the Bush and Obama Administrations. "There is reason to believe," said the study, "that for this particular recession, the UI program provided stronger stabilization of real output than in many past recessions because extended benefits responded strongly."
- have a multiplier effect of 2.0: for every dollar spent on unemployment insurance, this report finds an increase in economic activity of two dollars.
Extending unemployment benefits for the long-term unemployed is not just the right and humane thing to do. It’s also an investment in the economic stability of American families and communities. Blocking such an extension is both morally and fiscally unconscionable.
An investment strategy for America must, at the very least, include a targeted emergency extension of unemployment beyond 99 weeks for states with the highest rates of unemployment. Combined with direct investment infrastructure, job creation, job training, and sustaining essential local services, an emergency extension of unemployment benefits beyond 99 weeks is a necessary and essential part of an investment agenda for America.
Keeping Jobs At Home
Government must do more than ask, urge, admonish, cajole and beg corporations to keep jobs here and/or bring back jobs that have been shipped overseas. This point was most recently made by the Washington Post’s Harold Meyerson, upon President Obama’s recent meeting with CEO’s, in an effort to persuade them that he’s not "anti-business."
Asking American corporations to invest in America may be asking the leopard to change his spots. What, then, should Obama do?
One thing he shouldn’t do is hire a successor to Larry Summers who comes from Wall Street. I’m with those who think that Obama could use a CEO on his economic team, but he or she should be a manufacturing CEO with a track record of creating American jobs and a plan for rebuilding American industry. Someone like Intel’s legendary former leader Andy Grove.
A refugee from Hungarian communism, Grove came to the United States as a young man and rose to the top of the Silicon Valley heap, heading one of the few high-tech companies committed to domestic production. In a Business Week article this year, Grove lamented the fact that, in the past decade, America’s most innovative companies routinely scale up their production abroad rather than in the United States. He called for a tariff on offshored products, with the proceeds to go to a fund enabling such companies to manufacture their products domestically.
Americans are fearful, rightly, about the decline of their country’s economic leadership, and they see the offshoring of manufacturing as a primary cause of that decline. Obama needs to do more than just ask our CEOs to invest here. He needs to implement suggestions like Grove’s if we’re to rebuild American prosperity.
Dave Johnson further emphasized the urgency for American workers, who don’t get a summit with the President.
This summit to "ease strained relations" with business leaders is in response to a classic "playing the ref" move. While sitting on the highest profits ever they complain that the President is :anti-business" and get what they want. It’s too bad the unemployed — with the highest rates of long-term unemployment ever — are not represented in Washington by swarms of well-paid lobbyists, or by campaign contributions, or by "independent expenditure" smear-ad campaigns, or by astroturf (providing a corporate-purchased appearance of "grassroots" support) organizations. That seems to work. Being one of the regular old-fashioned "We, the People" doesn’t seem to buy much influence on our government and its leaders any more.
So how about holding a summit with the unemployed, and taking their suggestions? This might "ease strained relations" between the unemployed and the country’s leaders and their policies.
Policies going forward should create clear incentives for keeping jobs here and bringing jobs back, and clear disincentives for sending jobs abroad.
For decades, America practically hemorrhaged jobs, as corporations have taken advantage of the ease with which jobs can be shipped abroad, and Americans have watched jobs leave for other other shores, in most cases never to return. An investment agenda for America must include incentives for corporations to invest again in an America that has been a long-term investor in their success -- perhaps even asking them to be American corporations again.
There are many other ideas deserve consideration. President Obama recently hinted that reforming the tax code may next on his agenda. He would do well to consider that the tax code currently favors wealth over work. Americans who earn income from dividends and capital gains are taxed at a lower rate (15 percent) than those whose income depends upon earning a paycheck (25 percent).
We already have in hand many of the building blocks for a investment agenda grounded in progressive values -- an investment agenda America desperately needs. Assembling that agenda and making a clear case for it, by speaking directly to Americans’ economic fears and concerns, is the vitally important job before us.
Let us harbor no illusions that it will be easy to do so, or that much will be passable in the next Congress. But what’s winnable, we know, often falls far short of what’s needed or what’s right. We fight now, not necessarily because we are likely to win in the short term. We fight now because that is the only way what’s right have ever won, in the long term.
(Crossposted at Republic of T)