Unemployment Answer is Jobs Not Bailouts

February 6, 2010, 7:00 a.m.

Recession and Unemployment Solution:
Stop Bailouts for Banks and Bosses,
Stop Unemployment Compensation,
Start Federal Jobs Program and Pay Unemployed to Work

(brought to you by FromDC2Iowa.blogspot.com*)
You've got to hand it to the White House and the Congress. When it comes to fighting joblessness their creativity has known no bounds. They've tried, well not exactly everything, but almost everything.

So how's that working for you?

They tried giving investment bankers trillions of dollars. That didn't seem to create a lot of jobs.

They are still giving General Motors and its real estate investment arm, GMAC, billions of dollars. They even gave wealthy people who were able to buy new cars, and thinking of doing so, thousands of dollars to make the purchase. To everyone's surprise the unemployed still sat on their empty wallets and refused to buy. That didn't seem to create a lot of good, new, permanent, full time jobs either.

Now the President has decided to try giving billions of dollars to small business owners. Sewell Chan, "Obama Outlines Plan to Increase Employment," New York Times, January 30, 2010, p. B1 ("In proposing a one-year, $33 billion tax credit for small businesses, the Obama administration is simultaneously seeking to stimulate hiring by reducing payroll taxes and to turn its attention to a constituency that has historically been associated with Republicans. . . . [The plan] would give companies a tax credit of up to $5,000 for each new hire and reimburse them for Social Security taxes . . . capped at $500,000 for each employer").

It's too early to know, but I rather suspect giving Republicans $500,000 each isn't going to result in either their voting for the Democratic Party candidates next November or the provision of jobs for the 29 million unemployed and underemployed.

Yeah, they've tried almost everything. Between December and January they even raised the federal debt ceiling from $12.4 to $14.3 trillion, a $1.9 trillion hike, to cover the $1.35 trillion deficit in this year's budget -- occasioned in part by all the handouts to those "constituencies historically associated with Republicans." ("Senate Votes to Raise Debt Ceiling," New York Times/Reuters, January 28, 2010.)

So, if it's just been "almost everything," what haven't they tried?

They've had a year by now (since President Obama moved into the Oval Office) and they still haven't tried paying people to work. They still haven't tried putting money in the pockets of those "constituencies historically associated with Democrats."

And how have their approaches been working for them?

Unemployment? Forget 10%; try 17% or 48% and 29 million Americans.

While Wall Street and Washington enjoy their bonuses and government job security, and look for silver linings in our dark cloud cover (e.g., a "drop" in the unemployment rate from 10.2% to 9.7%), here is what Paul Harvey used to call "the rest of the story":

The Labor Department revised past data to show that the economy comprised 1.36 million fewer jobs in December than previously thought. The revisions showed the economy lost 150,000 jobs in December — far more than the 85,000 initially reported. . . .

Construction continued to suffer in January, shedding 75,000 net jobs. Transportation and warehousing lost 19,000 net jobs. . . .

The so-called underemployment rate — which counts the involuntary part-timers along with people who have given up looking for work — sat at 16.5 percent in January . . . nearly double the level of three years ago.

Those who have been out of work for six months or longer swelled from 6.1 million in December to 6.3 million in January, the highest level since the government began tracking such data in 1948.

Peter S. Goodman and Javier C. Hernandez, "Labor Market Shows Signs of Reawakening in New Data," New York Times, February 5, 2010.

The point is, as I noted in the blog entry "There's No Such Thing as 10.2% Unemployment," (1) a lot of people don't show up in that statistic because they've given up looking for work, no longer qualify for unemployment compensation, or are working part-time or otherwise well below their job skills and former income, and (2) no American demographic is "10.2% unemployed; 48% of some segments of our society are unemployed while others are 4% unemployed.

The New York Times provides one of its "multimedia interactive graphics" that makes the point: "The Jobless Rate for People Like You," New York Times, November 6, 2009. As it shows, the percentages of unemployment for various demographic groups that have been averaged into that 10.2% are widely disparate.

For example, the unemployment rate for white, college educated women, 45 and over is 3.7% -- a number well within the normal range for a fully functioning economy. (For white, college educated men over 45 it's an equally acceptable 4.1%.)

On the other hand, the unemployment rate for Black, high school dropouts, aged 15 to 24 is 48.5% -- equal to the worst numbers in third world countries with virtually no economy. For Hispanic men 25 to 44, with a high school diploma, it's 9.9%. For more of the combinations click on the link above and select the demographic characteristics that interest you.

Moreover, even that 10.2% increases to 17.5% if you include, along with the recently unemployed, those unemployed for over six months, part time workers who would rather be working full time, and those too discouraged to continue looking (and even that number does not include, so far as I know, those working full time but at jobs well below their skill, education, and experience level). Presumably that near doubling of the numbers would apply to the percentages within various demographic groups as well.

Nicholas Johnson, "No Such Thing as 10.2% Unemployment; I Can CCC Our Way Out of Recession," November 27, 2009.

The U.S. Bureau of Labor Statistics has a measure it calls U-6. "It includes the unemployed as well as people who would like to work, but who have not looked for a job recently and those involuntarily working part-time. In addition, there are individuals who are not in the labor force at all."

# As of the third quarter of 2009, there are 12.5 million unemployed native-born Americans, but the broader U-6 measure shows 21 million natives unemployed or underemployed.

# There are 6.1 million natives with a high school education or less who are unemployed. Using the U-6 measure, it is 10.4 million.

# In addition to those less-educated natives covered by U-6, there are another 18.7 million natives with a high school education or less not in the labor force, which means they are not looking for work.

# The total number of less-educated (high school education or less) natives who are unemployed, underemployed, or not in the labor force is 29.1 million.

Steven A. Camarota and Karen Jensenius, "A Huge Pool of Potential Workers: Unemployment, Underemployment, and Non-Work Among Native-Born Americans," Center for Immigration Studies, December 2009.

There are nearly 30 million Americans who could be working and are not. And what is Washington doing about them? They're using taxpayers' money to give Wall Street bankers bonuses.

There is a better way.

I can CCC clearly now -- why can't Washington?

Take a look at how President Franklin Roosevelt responded to unemployment during the last Great Depression. He didn't wait a year or more for improvement. It barely took him a month.

FDR was sworn in on March 4 of 1933. By March 31 the CCC legislation had been passed and signed. Five days later there were already 25,000 employed in the program -- soon to reach 250,000 and then 3 million. And not incidentally, the benefits to the participants in literacy training and health care paid national dividends for decades more.

"By mid-1933, sixteen CCC camps and thirty-two projects had been approved for Iowa. . . . By the time the CCC ended in 1942, the number of CCC enrollees in Iowa camps would total nearly 46,000. They would contribute to the development of more than eighty state parks, and leave a tangible legacy that still numbers more than seven hundred state park structures" -- including Johnson County's own Lake MacBride State Park. Rebecca Conard, "The Legacy of Hope from an Era of Despair: The CCC and Iowa State Parks," Books at Iowa 64 (April 1996). [Photo credit: the Iowa DNR CCC Web site.]

How far we have fallen from our once proud compassion for our fellow Americans in distress. Nor is that distress limited to homelessness and hunger. See Reid Forgrave, "Worry rises with suicide rate," Des Moines Register, November 28, 2009.

But hunger is still a very real problem. And yet some are even seemingly reluctant to provide the underemployed 17% with unemployment compensation and Food Stamps -- those who are suffering from an economic collapse brought on, through no fault of their own, by greedy, multi-million-dollar Wall Street bankers and those in Washington who've been blessed with their generous campaign contributions. See Jason DeParle and Robert Gebeloff, "Across U.S., Food Stamp Use Soars and Stigma Fades," New York Times, November 29, 2009, p. A1 (More than 36 million receive Food Stamps, a program that "now helps feed one in eight Americans and one in four children. . . . Under Secretary of Agriculture Kevin Concannon says 'there are another 15, 16 million who could benefit.' . . . [T]he program is now expanding at a pace of about 20,000 people a day. . . . In more than 750 counties, the program helps feed one in three blacks. In more than 800 counties, it helps feed one in three children. In the Mississippi River cities of St. Louis, Memphis and New Orleans, half of the children or more receive food stamps. [H]alf of Americans receive food stamps, at least briefly, by the time they turn 20. Among black children, the figure was 90 percent. . . . [During] the 1990s . . . some conservatives tried to abolish the program . . ..").

Notwithstanding the fact that many, if not most, of these recipients would prefer the self-esteem that comes from work, and the ability to support oneself financially, we have yet to see the first federal job created by the current Administration.

As a result, we all fail to receive the benefits -- for ourselves as well as the participants in a modern-day CCC -- if only we were willing to pay for their work rather than their unemployment.

Nicholas Johnson, "No Such Thing as 10.2% Unemployment; I Can CCC Our Way Out of Recession," November 27, 2009.

Just think some more about Roosevelt's timing. If President Obama had merely done the equivalent, not more, we would have already provided work, and an income, to 25,000 unemployed a full year ago. By now we'd have 3 million off the unemployment compensation roles and working, instead of homeless and destitute.

So tell me why you haven't done it, President Obama. Why? Why? Why have you almost exclusively targeted taxpayers' largess on "constituencies that have historically been associated with Republicans"?

We can argue about the administrative details. Notwithstanding the continuing need for work in our state and national parks and forests, if urban projects are thought to have higher priority, and the unemployed would prefer to work there, there's no shortage of urban projects either.

There's no question that it is helpful to pass federal dollars to state and municipal governments that can help keep government employees on the payroll. But it does little to provide work and income for the unemployed/underemployed who never have been government office workers, and who will continue to feel the pain of this "jobless recovery" for another couple years at a minimum. It does little to stimulate the economy with the consumer purchasing the unemployed could provide if they were working. It does little to quell the mounting risk of serious social unrest.

And it's relatively cheap to do. Goodness knows, there is no shortage of work that needs doing. If we can get that work done for little more than it costs us for unemployment compensation and food stamps, tell me again why we'd rather do that than provide the recipients with the dignity, as well as the income, of useful accomplishment?

Mother Jones magazine documented the $14 trillion that America's taxpayers will someday, somehow have to pay that was given to some of our elected officials' most generous campaign contributors on Wall Street. Nicholas Johnson, "A $14 Trillion Opportunity Cost," January 27, 2010.

Any idea how much of a federal jobs program that could have funded if it had gone to unemployed, poor workers instead of obscenely wealthy bankers? It could have funded all of the 29 million unemployed, at $25,000 a year, doing productive work, for 20 years. (Would you rather pay them $50,000 a year? OK; then the program could only run for 10 years.) And it wouldn't have taken 10 or 20 years, because it would have, instantaneously, recreated the economic engine that is consumer spending -- 70% of our gross domestic product.

February 12 addition: "No matter what Congress does to lower the cost of labor, employers won’t hire unless they believe demand will be sufficient to sell whatever the business produces." Editorial, "How Not to Write a Jobs Bill," New York Times, February 12, 2010, p. A30. The New York Times got that much right. Only by putting money in the pockets of workers -- not their potential employers -- can "demand" be created in that 70% of our economy that is driven by consumers. Unfortunately, the editorial does not take the next logical step and propose a federal jobs program.

If you've read this far . . .
. . . you've pretty much got my slant on this one. But if you'd like to read more, some prior consistent blog entries, see a list of links to earlier commentary, and another picture, read on.

What was I saying almost exactly a year ago? Almost exactly the same thing.

Quick Fix: Support Jobless, Not Bankers
February 7, 2009, 10:30 a.m.

Banker Bailout Billions Not the Answer
(brought to you by FromDC2Iowa.blogspot.com*)
There's even more reason this morning [Feb. 7, 2009] to make the economic recovery case I've been urging in these blog entries ever since the potential consequences of our downturn became obvious to all.

In a failing economy, 70% of which depends upon consumer spending, once the government decides to infuse trillions of dollars into the economy the first place to put it is in the pockets of those who will spend it: the jobless.

Yesterday we learned we now have 598,000 more of them among us than we had a month ago. ("[T]he Labor Department announced that 598,000 jobs were lost in January. The contraction in jobs is already steeper than in any other recession since at least the early 1980s. And economists warn that several more shoes are about to drop . . .." Carl Hulse and David M. Herszenhorn, "Senators Reach Accord on Stimulus Plan as Jobs Vanish," New York Times, February 7, 2009.)

Adequate and additional funding for the unemployed does not require the creation of new programs (they're already in existence), can distribute the money faster than almost any other way, provides money to those most likely to spend it (rather than invest it), and to spend it almost immediately (rather than months from now), with a multiplier effect of roughly 1.7 in economic impact (compared to 0.27 for tax cuts), in the single largest economic sector (consumer spending).

And for those who look at economic recovery issues from a moral, ethical, humanist, communitarian, sociological or religious perspective, clearly those who are down on their luck through no fault of their own are the ones most deserving of our government's assistance. The point is, even if these considerations are ignored, and one just looks at the numbers like a steely-eyed banker, caring for the jobless is also the most cost-effective way out of the hole we're in.

But it's not quite that easy, as Christopher S. Rugaber's AP story explains. Christopher S. Rugaber, "Recession exposes holes in jobless benefit system; Holes exposed in jobless safety net as more than 5 million go without unemployment benefits," Associated Press/Yahoo! Finance, February 6, 2009.

o Half or more of the 11.6 million currently jobless Americans aren't covered.

o Some earned too little to qualify -- in part because of how their earnings are calculated.

o Part-time workers aren't covered.

o Benefits run out (after, say, 26 weeks) long before new jobs appear, since the program was designed for those "between jobs" during brief recession dips not the massive, continuing joblessness of a major global depression.

o The programs are funded by employers, now contributing less.

o They are administered as state, rather than federal, programs; states are running out of money, and under-staffed to handle the rapid increase in applications.

Here are some excerpts from Rugaber's story:

The government safety net designed to protect laid-off workers from financial catastrophe is falling short, leaving nearly half the 11.6 million jobless Americans without unemployment benefits.

The shortcomings are fueling the recession as an increasing number of workers fall through the cracks and curtail spending. The trend highlights what economists say is a growing need for a 21st century makeover of a program started in the depths of the Great Depression.

Among the key problem areas:

-- There are many more part-time workers now than in 1935, but the program only covers those looking for full-time work.

-- Many eligible jobless Americans are shut out because states use an outdated system for calculating their income, making it more difficult to meet requirements.

-- Unemployment spells increasingly last longer than the usual 26-week jobless benefits program.

Jobless benefits are essentially mini-financial stimulus packages for struggling American families. Helping laid-off breadwinners continue to purchase goods and services until they find new jobs ultimately bolsters the economy and makes further layoffs less likely. . . .

[J]obless benefits . . . vary by state but average about $300 a week. . . .

[Covering] part-time workers and more low-wage workers . . . could extend benefits to 500,000 people . . ..

But more fundamental reforms are needed to address the system's underlying weaknesses, several economists said.

Many of the 5.2 million unemployed Americans without jobless benefits already ran through their 26 weeks of assistance. The program, funded by states through taxes levied on employers, has been no match for a recession that is frustrating the ambitions of even the most qualified job hunters.

That is forcing families to cut back on spending and dip into savings, if they have any. . . .

Gus Faucher, director of macroeconomics at Moody's Economy.com, said if the government provided benefits to more workers, it would reduce the severity of the recession. . . .

Before the emergency extensions, only about one-third of unemployed Americans were receiving benefits, a level that has declined steadily since coverage was at its peak in 1975.

The proportion of workers covered usually increases during recessions as Congress typically enacts extended benefits. Some experts argue that extensions should be automatic during downturns to avoid politicizing them. . . .

High demand -- and insufficient funding -- has made it difficult for many unemployment offices to keep up. Last month, online systems for requesting benefits in three states crashed under the crush of claimants. . . .

At least a half-dozen states have had to borrow money from the federal government to pay benefits after exhausting their unemployment insurance trust funds. . . .

In decades past, layoffs during recessions were often short-lived and workers were eventually rehired by the same company. Today, companies are more likely to eliminate jobs for good, either by shutting down plants or moving them abroad, according to a study by the Brookings Institution.

The result: Unemployment spells tend to be longer . . ..

Many states don't count workers' most recent 3 to 6 months of wages . . . [S]hortchang[ing] low-income workers, who may not be able to prove they earned the minimum required for benefits. . . .

In 21 states that have begun calculating eligibility using up-to-date wages, roughly 40 percent of those who initially didn't qualify were able to do so . . ..

Jeffrey Kling, an economist at the Brookings Institution, says . . . the government should temporarily replace part of the income workers lose when they take lower-paying jobs after a layoff.

The stimulus package provides some little nods in the direction of the jobless, but is a far cry from solutions. Once these problems are fixed, once all of the jobless are offered financial support, job training and job opportunities, once we've at least begun to expand for them the immediate relief of health care and ways to hang onto their homes, then and only then should we be considering any additional hundreds of billions for bankers.

Presumably, the Republicans in the House and Senate will support me on this. After all, their objections to some elements of the Obama stimulus package were that they didn't think they would create jobs, that any impact on economic stimulus would be too far in the future, or that they had nothing to do with stimulating the economy, and that taken together they involved far too much total money.

Surely those concerns are all equally applicable to the additional hundreds of billions Treasury Secretary Geithner is about to propose for his banking friends. Those billions not only won't create jobs, they will not even require the banks to make loans! And given the $2.4 trillion the Fed has already provided the banks, and the $350 billion in TARP funds, the amounts Geithner is talking about far, far exceed anything ever considered for the jobless, or for jobs programs.

Stephen Labaton, "New Plan to Help Banks Sell Bad Assets," New York Times, February 7, 2009 ("[T]he Obama administration has settled on a plan to inject billions of dollars in fresh capital into banks . . . [that] will not require banks to increase their lending. That is despite criticism that institutions that already received money from the Troubled Asset Relief Program, or TARP, either hoarded it or used the funds to acquire other banks. . . . The goal is to relieve the banks of their worst assets . . ..")

There may be more details tomorrow, but I still intend to measure them by the standards I set out at the end of the blog entry two days ago. Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009.
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Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Who's The Reason?" September 5, 2008

Nicholas Johnson, "How Much Do You Owe the Chinese?" September 6, 2008

Nicholas Johnson, "Taxpayer Rescue," September 15, 2008

Nicholas Johnson, "Global Finance: The Great Fountain Pen Robbery," September 21, 2008

Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008

Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan," October 2, 2008

Nicholas Johnson, "Can We Trust Our Bankers?" October 29, 2008

Nicholas Johnson, "It's the Economy," November 7, 2008

Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery," November 8, 2008

Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008

Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008

Nicholas Johnson, "A Trillion Here, a Trillion There," November 20, 2008

Nicholas Johnson, "FromDC2Iowa's Weekend Edition," November 21, 2008 ("The Answer to Global Economic Collapse" and "Auto Bailout: 'Show Me the . . . Plan'")

Nicholas Johnson, "Citigroup Deal Stinks," November 25, 2008

Nicholas Johnson, "Only Select Few Are Thankful for Trillions," November 27, 2008

Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008

Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008

Nicholas Johnson, "You Know It's Serious When We Start Laughing," December 15, 2008

Nicholas Johnson, "A Car in Every Garage," December 16, 2008

Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008

Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008

Nicholas Johnson, "There's Bad News and . . . and . . .," December 21, 2008

Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008

Nicholas Johnson, "Revolting Developments," December 23, 2008

Nicholas Johnson, "First Things First," January 8, 2009

Nicholas Johnson, "Why We Should 'Point Fingers' and 'Look Backwards,'" January 13, 2009

Nicholas Johnson, "Fool Me Twice," January 14, 2009

Nicholas Johnson, "Economic Sorrows and Solutions," January 27, 2009

Nicholas Johnson, "No More for Wall Street!" February 1, 2009

Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009

Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009

And again last November . . .

"Jobs, Not Unemployment, Key to Recovery," November 8, 2008

Why We Need a Jobs Program

Look at the numbers. There are now over 10 million unemployed. Unemployment stands at 6.5 percent, and is projected to go to 8 percent next year -- 22 percent of whom have been out of work for more than six months, something we haven't seen for a quarter-century. The rates are increasing. Of the 1.2 million jobs lost this year 284,000 were in September and 240,000 in October.

In the 1950s over 50 percent of the unemployed received benefits; today, because of various restrictions, only 32 percent qualify -- more unemployment, more holes in the safety net.

The Times reports, "'The economy is slipping deeper into a recessionary sinkhole that is getting broader,' said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh."

Put it all together and the answers seem, to me, rather obvious.

You can't improve business (profits, returns to shareholders, executive compensation) without improving retail sales; you can't improve retail sales without putting money in the hands, and confidence in the heads, of potential consumers; and unemployed consumers don't have money unless they are provided either unemployment compensation or wages from a public sector job (in an economy with a shrinking private sector).

Given our rotting, unattended, infrastructure (roads, bridges, pipelines, schools) resulting from the last 30 years of "tax cuts" it seems to me, given the same amount of money, that using it to create "jobs" makes more sense than providing it for "unemployment compensation."

But either makes more sense than trying to turn an economy around with "trickle down" -- whether tax cuts for the rich, or bailouts for the rich.

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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself.
-- Nicholas Johnson
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