Every month the number of jobs added to the economy gets a lot of publicity. Recently, the economy has added about 200,000 jobs a month which sounds and feels good combined with headline unemployment of 5 percent.
But there is a story these numbers do not tell and a darker reality that is less publicized.
Five percent unemployment means more than 7 million are people still actively looking for work. But, according to various estimates there are between 2 and 7 million Americans who are not working and have stopped looking for employment. This 2 to 7 million are not included in the official unemployment numbers.
These folks live in deep and dire poverty. Many are homeless and lack access to a computer or transportation, which they need to apply for jobs, training or housing. They are not included in the official unemployment numbers.
In addition, according to the Bureau of Labor Statistics there are nearly 6 million people who are working part-time but want to work full-time. Together the total unemployed and underemployed actually number around 20 million.
To combat the Great Depression President Franklin Roosevelt introduced the New Deal which increased federal government spending dramatically between 1933 and 1937. This action, along with looser monetary policy, bought the economy back to life as GNP nearly doubled and unemployment fell from 35 percent to 20 percent. Corporate spending also returned and by 1937 it was greater than before the Great Depression began.
But the New Deal was an experiment and Roosevelt decided to go in a different direction in late 1937. At that point bank lending was curtailed by tighter monetary policy and federal government spending was reduced markedly. This reversed the recovery as unemployment climbed dramatically and GNP contracted.[ii] Some have labeled this a double-dip recession.
Do the actions of the New Deal have practical lessons for the present?
During the Great Recession of 2008/2009 the size of the economy (now GDP) shrank, corporate spending contracted and seven million people lost their jobs. To resuscitate the economy President Barack Obama passed the federal stimulus which increased federal government spending and the Federal Reserve Board lowered interest rates. By the second half of 2009 GDP was growing, employment was returning and the stock market had recovered.
According to the investment bank, the U.S. economy is about to experience its fifth consecutive year of below average growth. It suggests increased public spending “particularly now when rates are still low, could lead to a virtuous cycle, where the corporate sector takes up investment, thus sustaining job creation and income growth”.
Keynes advocated increased government spending when business spending tanked. Would government spending provide a productive boost to the economy?
The McKinsey Global Institute recommended the U.S. boost infrastructure spending by $129 billion a year to meet transportation, water, energy and telecommunications requirements. S&P Global Ratings analyst, John Sugden, has written that delaying repairs could drive up costs in the long run.
Borrowing costs have never been lower, the value of the dollar has rarely been higher, materials costs are down and the expanding hole at the bottom of the wage ladder has rarely been more pronounced.
History, economic theory, infrastructure needs and crippling unemployment demand significantly increased spending to rebuild America. How long will these economic needs be thwarted by the politics of fiscal minimalism?
[iii] “U.S. Growth Starts Year in Familiar Rut.” Wall Street Journal http://www.wsj.com/articles/u-s-first-quarter-gdp-advances-at-0-5-pace-1461846715 .
[iv] Morgan Stanley, “For the World Economy, Is it 1937 All Over Again,” July 15, 2016, http://www.morganstanley.com/ideas/global-economy-risks-double-dip-without-more-stimulus .
[vi] See iii and El-Erian, Mohamed, The Only Game in Town: Central Banks, Instability and avoiding the Next Collapse, Random House, 2016. August 26, 2016, http://www.reuters.com/article/usa-fed-idUSL1N1B71UY .
[vii] Harrison, David and Gillers, Heather. “American Paradox: It’s Never Been Cheaper for Cities and States to Borrow Money…And They Refuse to Do It.” Wall Street Journal, Aug. 7, 2016,http://www.wsj.com/articles/american-paradox-its-never-been-cheaper-for-cities-and-states-to-borrow-money-and-they-refuse-to-do-it-1470562203 .
[xi] Goldfarb, Jeffery. “Note to D.C.: Jack-hammer away on infrastructure.” Reuters, Breaking Views, August 3, 2016, http://blogs.reuters.com/breakingviews/2016/08/03/note-to-d-c-jack-hammer-away-on-infrastructure/ .
[xii] “Hillary Clinton’s Infrastructure Plan: Building Tomorrow’s Economy Today.” Hillary Clinton Campaign website. Factsheets, The Briefing. https://www.hillaryclinton.com/briefing/factsheets/2015/11/30/clinton-infrastructure-plan-builds-tomorrows-economy-today/ .
[xiii] Long, Heather. “Trump vows to outspend Clinton on roads, bridges.” CNN Money, August 3, 2016, http://money.cnn.com/2016/08/03/news/economy/donald-trump-infrastructure/ . Also, Thomas, Zoe. “U.S. election: Could Trump really cut the US $19tn debt in eight years.” April 8, 2016, http://www.bbc.com/news/business-35974537 .
Tim Canova espoused a Green New Deal, where the government would build out a solar and wind energy infrastructure which would not only provide many good paying jobs but save money and the environment. Unfortunately the establishment sees this as a threat to their puppet masters and benefactors. We need to clean House and get rid of career politicians of both parties.