Sunday, September 09, 2012

Trickle-Up Economics Serves Both Greedy and Needy

September 9, 2012 3:50 p.m.

No One is 8 Percent Unemployed

Sometimes it is true that "the longest way round is the shortest way home." More often, however, the shortest way home is also the shortest way round.

So it is with "creating jobs."

Republicans' -- and Democrats' -- Trickle Down Programs

There's nothing like a presidential campaign to produce a lot of talk about jobs. The Republicans say jobs will come from further enriching the wealthy, "the job creators," with more and ever-greater tax cuts. The Democrats say the answer lies in "stimulus" -- kind of an above-the-board way of doing the same thing. (That is, the financial impact on corporations and the wealthy of a $100,000 tax cut is precisely the same as a $100,000 "stimulus" payment. The only difference is that the latter shows up as an "appropriation," and the former does not.)

As these photos illustrate (Great Depression food distribution; today's job fairs), there's little to no evidence the Republicans' approach works. We've had recessions when taxes were low (President George W. Bush's years), and impressive growth when they were much higher (post-WW II, with also the Century's lowest unemployment rates; or during President Bill Clinton's years).

The Democrats' "stimulus" has had some impact, but at an enormous cost per job (the President Barack Obama administration). Goodness knows we need infrastructure improvements such as roads, bridges and schools, and I'm certainly in favor of employment for those in the trades. But as jobs programs, they do little for the demographic groups with the highest rates of unemployment.

Both approaches are, in effect, grounded in "trickle down" ideology: If only taxpayers will provide enough capital to corporations and the wealthy (whether through tax reductions, cash or contracts), and leave the decisions to them, so the theory goes, unemployment will decline as production of goods and services increase and government construction projects are undertaken.

This ideology is tragically wrong for at least two reasons.

First, those Republicans who are actually running businesses are simply too smart to make it work. When demand for their businesses' goods and services decline, no amount of government incentives will prompt them to build more plant, buy more equipment, and hire more workers. Why would they want or need more production, when their warehouses and showrooms are full of goods that don't move? They're not that stupid and self-destructive. They know that it is demand that provides the rationale for investment, not investment that creates consumer demand. Especially is this true in our economy, in which PCE (personal consumption expenditures) are between 65 and 70 percent of GDP. William R. Emmons, "Don't Expect Consumer Spending To Be the Engine of Economic Growth It Once Was," The Regional Economist, Federal Reserve Bank of St. Louis, January 2012.

Corporate America, reportedly sitting on $2 trillion, doesn't need more cash, or lower interest rates. What it needs is a jump start for the economy.

In short, a capitalist economy, the job-creating sector par excellence during a booming economy, is inherently, by definition, totally incapable of turning around an economy that is stagnant, in recession, or an economic depression -- as we have witnessed since 2007.

A stagnant capitalist economy is like a stick shift car with a dead battery and no jumper cables. You have to push it, have the driver put it gear, and then let out the clutch, in order to get the engine to turn over and start. Then it can take off down the road under its own power. The federal government is about the only thing available that can give an economy that push. Otherwise, we're like a crowd of clueless teenagers, standing around and staring at that car, just waiting for it to start on its own.

No One Is 8 Percent Unemployed

Second, both Democrats' and Republicans' analyses are based on the simplistic and fallacious, "8 percent unemployment" thinking. No one is "8 percent unemployed." A worker may be working part time rather than full time, earning 8 percent less, or unemployed 8 percent of the year. But he or she is either employed or unemployed. Ironically, to acquire a statistical understanding of our jobs and economic challenges we need to abandon the general, "average," statistics and look at the individuals -- or at least the demographic groups of which they are a part.

Here's an example of what I mean. There are vast differences in the employment and unemployment numbers that turn on education, race, age and gender. At this point in 2012, the unemployment percentage for those without a high school education is 12.0%; for those with a B.A. or above it's 4.1%. For African Americans it's 14.1%; for Asian Americans 5.9%. For those between 25 and 34 it's 8.3%; for those 55 and above, 5.9%. For males it's 8.3%; for females 7.8%. See, e.g., "Unemployment Demographics", Department of Numbers, August 2012.

And these differences can compound.

The worst possible combination is for someone who is a young, African American male who has dropped out of high school. The numbers differ slightly based on who is reporting, and from what years, but usually indicate unemployment for those in this group is somewhere in the 70% range -- especially if the prison population is included, as it should be. See, e.g., "Data that don’t include inmates show that 41.9 percent of young, black, male dropouts were employed in 2008 [i.e., 58.1% unemployment]. Including inmates we find that close to one quarter, or 26.3 percent, of young, black men without a high school diploma were employed on a given day in 2008 [i.e., 73.7% unemployment]. If you recall incarceration rates I mentioned earlier, that means that more young black men without a high school diploma were incarcerated (37%) than were employed (26.3%)." Rohan Mascarenhas, "Mass Incarceration in America: An Interview with Becky Pettit," Russell Sage Foundation, June 26, 2012.

On the other hand, in 2009 women were 57 percent of undergraduates, 60 percent of graduate students, and over 50 percent of Ph.D. candidates. Unemployment rates for married women were 5.5 percent (and for single mothers 13.6 percent -- if one chooses to ignore the "employment" involved in raising children and running a house). "Jobs and Economic Security for America's Women," National Economic Council, White House, October 2010.

Put these numbers together with those four paragraphs above and they create quite a contrast with those for young, black, male, high school dropouts. I recall reading somewhere -- when I can't recall, and where I can't find, even with Google -- that white women in their forties, with Ph.Ds, had an unemployment rate close to 4 percent. Considering the percentages of unemployment reported above for college degree holders who are white, women, over 55, that seems a reasonable number -- one that would be even lower for Asian American women.

The Fully Employed and the Totally Unemployed

The lowest possible national unemployment rate on any given day is not zero. People are moving to another location (and job), or on vacation, or in the hospital. The lowest unemployment rate recorded for any year since 1948 is about 3 percent. "Unemployment Rates in the U.S. Since 1948," ("The year with the lowest average unemployment rate was 1953 with an average unemployment rate of 2.93%.").

So rather than "8 percent unemployment," what we have in fact is a variation in employment among American demographic groups from near total unemployment (rates in the area of 70 percent) to near full employment (rates between 3 and 5 percent).

So where to begin?

Since Peter Drucker started talking about "profit centers" and "cost centers" in 1945 (and subsequently modified his position on the former), they've been a part of the vernacular of business. They are useful in thinking about unemployment as well.

If unemployment can be most effectively addressed only in terms of the individual demographic groups between which it varies so radically, what demographic group will offer the greatest opportunity for job creation with the fewest number of programs and the lowest cost per job? Which will offer the greatest benefit to cost? Doesn't it make most sense to start with the group in which virtually everyone is unemployed (young, male, dropouts) and save until last those in which almost everyone already has a job (middle-aged, Asian-American, women, with Ph.D.s)?

None of this is said out of an insensitivity to the hurt suffered by any and all who are out of work -- including professionals and former corporate CEO millionaires. Nor is it a proposal to shut down all programs designed to help the unemployed in the more favored demographic groups. It is only to say that a little benefit-cost triage analysis might also make sense.

If you've followed this so far, including the reality that the private sector cannot turn the economy around all by itself, leaving by default the federal government as the employer of last resort, the question is what kind of a program might best work.

We have some former and current models, including President Franklin Roosevelt's WPA (Works Progress Administration; "Between 1935 and 1943, the WPA provided almost eight million jobs"), CCC (Civilian Conservation Corps; "in nine years 2.5 million young men participated in the CCC"), and National Youth Administration. Today's Forest Service runs a "Youth Conservation Corps" program, and there are many more youth-related programs, such as Job Corps, throughout the federal and state governments.

What Could Henry's Employees A-Ford?

Henry Ford's Model-T Ford workers were paid above scale. His motives for doing so are subject to debate. It is widely believed this was so that his workers could afford to buy those cars. "Fordism," Others say it was to reduce turnover. Tim Worstall, "The Story of Henry Ford's $5 a Day Wages: It's Not What You Think," Forbes, March 4, 2012. For our purposes we need not probe the mind of Ford.

We just need to focus on the benefits of providing jobs to the unemployed -- starting with the demographic that has the highest unemployment numbers (young high school dropout males). Some may feel a moral, ethical, religious or noblesse oblige obligation to do so. Fortunately, for those who do not, those driven by selfishness and greed, the conclusion is the same. Putting aside the direct benefits for those who get the jobs, and income, all social-economic classes benefit -- from the jump-start to the economy that speeds recovery, from what may be an increased personal income from more sales (and profit), and from the enormous savings that will result from youth employment.

Poverty and unemployment aren't free. You can keep the unemployed out of sight and mind, but not out of your pocketbook -- or your home. When someone has "nothing left to lose" is when they're open to breaking and entering, stealing food to feed the kids, selling drugs (or their bodies) to pay the rent, and ultimately participating in the violent protests that occasionally bring property damage and worse to our cities. It's not cheap keeping a third of these youngsters in prison. Jesse Jackson used to point out that it would be cheaper to give them a full-ride scholarship to Harvard -- if only they were eligible -- than to keep them in prison. It's not cheap to provide their basic healthcare in hospitals' expensive emergency rooms. Wouldn't you rather have your taxes going to pay their wages -- with the physical benefits that might provide to your community -- than pay for their unemployment compensation and food stamps (and other costs poverty can bring)?

If we really want to get our economy going again, if we really want to create jobs, the best way to do it is to focus on directly creating jobs, not additional tax breaks for those who don't need them, or even "infrastructure" as such, in the hopes it will trickle down. We need to start with the demographic that needs them the most. That will cost us the least; save us the most; have the greatest impact on the economy; and start to trickle up, further enriching the wealthy as well, while also helping the 99 percent.

Imagine what $1 trillion of bank bailout money in 2009, used instead in a program like this, could have accomplished by now. At even $25,000 a year per youth, that could have created 40 million jobs for one year, or 10 million jobs for four years. As the program would have expanded jobs on up the demographic groups less impacted with unemployment, it's not unreasonable to project that we would all be able to say this fall that, "I really am better off now than I was four years ago."

Moreover, as the program kicked in, more Americans were employed and spending money, demand would increase (along with confidence), sales and profits would increase, production would follow, and at long last the private sector would be in a position to hire more employees -- including those who would by then have some newly developed job skills they could contribute to their new workplace, as they move from public to private payrolls.

Yes, sometimes the shortest way home really is the shortest way round.

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