The Jobs Crisis and A *New* New Deal for America

The nation is experiencing the most severe economic crisis since the Great Depression. Princeton economist and former vice-chair of the Federal Reserve, Alan Blinder, calls the current crisis a “national jobs emergency.”

The official unemployment rate in September was 9.1 percent – nearly twice the rate a decade ago – leaving 14 million people out of work. In California, the rate is much worse, 12.1 percent, with over two million workers out of luck.

It's not just the financial meltdown of 2008 and the Great Recession. The American economy has been underperforming for years. Business Week calls 1999-2009 “The Lost Decade for Jobs,” as private sector employment grew by a paltry net 1.1 percent—the lowest increase for any 10-year period since the 1930s.  

President Obama’s jobs plan would provide a much-needed extension of unemployment benefits and a payroll tax cut for working Americans, but it will do little to dent the catastrophic rate of unemployment. What we need today is a massive jobs program like the Works Progress Administration (WPA) launched by President Franklin Roosevelt. The WPA put millions of people back to work in the midst of the Great Depression, restoring their dignity, putting money in their pockets, and quite literally saving lives.

The crisis is much worse than most of us think. According to the U.S. Department of Labor, the under-employment rate is 16.5 percent, if you count part-time workers who want full-time jobs and discouraged workers who have simply stopped looking. The Economic Policy Institute (EPI) reports that the number long-term unemployed, meaning those unemployed for more than six months, hovers at a postwar record level of 45 percent. All these figures are much higher for Black and Latino workers.

No one is insulated. Workers at every educational level have seen their unemployment rates double since 2007 – high school graduates, college graduates and even those with graduate degrees. The severity of the crisis has overturned conventional wisdom that higher education is a cure for joblessness. The unemployed do not need more education–they need work.

What did Roosevelt do that Obama is not doing?

In the winter of 1933, with unemployment reaching 25 percent, Roosevelt established the Civilian Works Administration, an emergency jobs program that put 4.2 million unemployed to work within six months. He also started the Civilian Conservation Corps to employ a half-million young men with minimal skills in useful work in the nation's parks, forests and rangelands. Meanwhile, Roosevelt launched the Public Works Administration, which funded long-term infrastructure projects such as highways, bridges, dams and public buildings.

The WPA followed in 1935, employing 8.5 million more between 1935 and 1943. It put those men and women to work on projects requested by state and local governments, such as roads, schools, sewers and airports, and operated local arts, educational, and media programs.

Once the New Deal was launched in 1933, the U.S. economy began to grow again by leaps and bounds – at a rate of nearly 10 percent per year. By 1937, production had doubled and the unemployment rate had dropped by half. By 1941, before the war began, the economy was back where it would have been had the Depression never happened. With the wartime build-up, mass unemployment became a distant memory.

To tackle our current unemployment crisis, the federal government should spend $500 billion a year over next the three years on emergency jobs programs like those of the New Deal. The first step would be to give every state and local government the funds to restore their budgets. The loss of 680,000 teaching, police, transit, and other public service jobs over the last three years have contributed measurably to the downturn.

The second step would be direct programs to create new full-time jobs for the unemployed – at the median wage of $16.27 an hour – in areas where the need is obvious: in schools (e.g., teachers, school maintenance, and enrichment programs), human services (e.g., child care, home care, and health care), and energy conservation (e.g., retrofitting homes and public buildings).

To this should be added a third step – financing large-scale public works programs to build schools, bridges, a ‘smart’ electrical grid, zero-emission buses, high-speed rail, wind farms, and affordable housing. The pathetic state of our national infrastructure has been decried for years by the American Society of Civil Engineers, which gives the country a D grade, and the United States ranks 32nd in the world in infrastructure, according to McKinsey Global Institute.

A substantial increase of government spending for public works will create expanded opportunity for youth, women, and minority workers to enter apprenticeship programs in the construction trades and to receive training from highly skilled journeymen and women.

How to pay for such a jobs program? 

First, the federal government can run temporary deficits. While the federal deficit is relatively high at 10 percent of GDP in 2010, it is still dramatically lower than the peak of 30 percent of GDP during World War II. Contrary to popular thinking, government spending in a recession can lower the deficit by taking people off the unemployment roles and putting money in the hands of ordinary people to bolster consumer demand, which stimulates business and returns more tax revenues.

But since we are worried about the current federal deficit and the budget woes of state and local governments, we must heed investor Warren Buffett’s call to “stop coddling the rich” by raising taxes on millionaires and closing corporate loopholes.

The upper 1 percent’s share of national income increased from 9 percent in 1976 to 24 percent in 2007, according to a report by UC Berkeley economist Emmanuel Saez. Nearly half of total income went to the upper 10 percent in 2007, compared to 33 percent thirty years earlier. The top income tax rate on the highest earners was 70 percent between 1940 and 1980 – when the economy was performing much better than it is today – and now it is just 35 percent.

Moreover, corporate profits increased at an annual rate of $1.6 trillion in 2010 – a record for the postwar period. The Tax Policy Center reports that federal revenue from corporate taxes has dropped by half over the last 60 years, while corporations like Verizon, Bank of America, and General Electric pay essentially no taxes due to loopholes in the tax code.

The Congressional Budget Office estimates that a 5.6 percent surcharge on incomes exceeding $1 million as proposed by the Obama administration–will raise $40 billion a year. Ending the Bush era tax cuts for the upper 2 percent, set to expire in 2012, will generate more than $80 billion a year, according to the Economic Policy Institute. Economists Robert Pollin and Dean Baker estimate that a 0.5 percent transaction tax on the transfer of stocks and securities will yield $175 billion annually from the largest financial institutions and speculators. The Center for Tax Justice calculates that federal tax revenue will increase by $365 billion a year if corporate tax loopholes and subsidies are eliminated.

Illinois Congresswoman Jan Schakowsky recently introduced a jobs bill that is much bolder than the legislation proposed by President Obama. It would create 2 million emergency jobs over the next two years through federal spending to repair schools, maintain parks, and to restore cutbacks of police, teachers, and firefighters. Higher tax brackets for millionaires and billionaires, closing tax loopholes for corporations that export jobs abroad, and eliminating subsides for major oil companies will finance her legislation.

Republicans oppose taxing the rich, just as they did in the 1930s. It will take popular mobilization by labor, faith, civil rights, women’s, and youth organizations to overcome such resistance–just as it did then. Occupy Wall Street may be the beginning of a movement for a new New Deal. Collective action worked in the 1930s, and it could work again now.

Martin Bennett teaches American history at Santa Rosa Junior College and is co-chair of the Living Wage Coalition of Sonoma County. Richard Walker is a professor of geography at UC Berkeley and co-director of the California Living New Deal Project.