The American Jobs Depression And How To Get Out Of It

By Robert Reich, cross-posted on his website

The Reverend Al Sharpton and various labor unions have announced a March for Jobs. But I’m afraid we’ll need more than marches to get jobs back.

Since the start of the Great Recession at the end of 2007, America’s potential labor force – that is, working-age people who want jobs - has grown by over 7 million. But since then, the number of Americans who actually have jobs has shrunk by more than 300,000.

In other words, we’re in a deep hole and the hole is deepening. In August, the United States created no jobs at all. Zero.

America’s ongoing jobs depression - which is what it deserves to be called - is the worst economic calamity to hit this nation since the Great Depression. It’s also terrible news for President Obama, whose chances for re-election now depend almost entirely on the Republican party putting up someone so vacuous and extremist that the nation rallies to Obama regardless.

The problem is on the demand side. Consumers (whose spending is 70% of the economy) can’t boost the American economy on their own. They’re still too burdened by debt, especially on homes that are worth less than their mortgages. In addition, their jobs are disappearing, their pay is dropping, their medical bills are soaring.

Consumer spending slowed again in August as incomes dropped.

Businesses, for their part, won’t hire without more sales. So we’re in a vicious cycle. The question is what to do about it.

When consumers and businesses can’t boost the economy on their own, the responsibility must fall to the purchaser of last resort. As John Maynard Keynes informed us 75 years ago, that purchaser is the government.


Government can hire people directly to maintain the nation’s parks and playgrounds and to help in schools and hospitals. It can funnel money to help cash-starved states and local government so they don’t have to continue to slash payrolls and public services. And it can hire indirectly - contracting with companies to build schools, revamp public transportation and rebuild the nation’s crumbling highways, bridges and ports.

Not only does this create jobs but also puts money in the hands of all the people who get the jobs, so they can turn around and buy the goods and services they need - generating more jobs. Not exactly rocket science.

But congressional Republicans are firmly opposed. Why don’t Republicans get it? Either they’re knaves - they want the economy to stay awful through next election day so Obama gets the boot. Or they’re fools - they’ve bought the lie that reducing the deficit now creates more jobs.

Republicans claim businesses aren’t hiring because they’re uncertain about regulatory costs, or their taxes are too high, or they can’t find the skilled workers they need. But if these were the reasons businesses weren’t hiring - and consumer demand were growing - we’d expect companies to make more use of their current employees. The average number of hours worked per week by the typical employee would be increasing.

In fact, the length of the average workweek has been dropping. In August, it declined for the third month in a row, to 34.2 hours. That’s back to where it was at the start of the year - barely longer than what it was at its shortest point two years ago (33.7 hours in June 2009).

Republicans say America can’t afford to spend more. In truth, we’ll be in worse shape if we don’t. If the economy remains dead in the water, the ratio of public debt to the total economy balloons.
Besides, the United States can now borrow money from the rest of the world at fire-sale rates.

Interest on the ten-year Treasury bill is now under 2%. That’s an almost unprecedented deal. With so many Americans unemployed and so much of our infrastructure in disrepair, this is the ideal time to get on with the work of rebuilding the nation.

But it won’t be enough for government to become the buyer of last resort – in Keynes’s words, to prime the pump. If the economy is to continue to grow and create jobs after the government has stopped the priming, there must be enough water in the well. Yet, now and in the foreseeable future, America’s vast middle class doesn’t have the purchasing power to keep the mechanism going.

For more than 30 years, the median wage in America has barely increased, adjusted for inflation – even though the economy is twice as large as it was three decades ago. Almost all the gains have gone to the top - especially the top 1%, who now receive over 20% of total income (it was just 10% in 1980).

As long as America’s vast middle class could continue to borrow on the rising value of their homes, they continued to spend - thereby keeping the economy going. But going deeper into debt is not a sustainable strategy. Now, after the bubble burst, America’s middle class doesn’t have enough money to maintain the economy at or near full employment.

Any long-term strategy for rescuing the American economy must therefore seek to reverse the widening gap in income and wealth. One place to start is tax reform. The earned income tax credit - a wage subsidy for lower-income workers - should be enlarged and expanded. Taxes on the middle class should be reduced - including social security payroll taxes (80% of Americans pay more in payroll taxes than they do in income taxes).

Taxes on the wealthy, on the other hand, should be increased. The president has proposed closing some tax loopholes that allow the super-rich to reduce their tax liability, and to end the tax cut on the rich put in place by George W Bush in 2001 (thereby increasing the top marginal tax rate to what it was under Bill Clinton - 39%).

But the nation should go much further, particularly in light of the large budget deficit projected several years from now. We need more tax brackets at the top, with higher marginal rates. The capital-gains tax (now at 15%) should be raised to match the income tax rate. And a wealth surtax of 2% should be applied to all wealth in excess of $7 million.

Needless to say, Republicans won’t go along with anything like this. They balk even at the president’s modest plan.

It would be better for President Obama to assume that he will get no Republican support this year and next, and build his 2012 election campaign around a bold plan to revive jobs and the American middle class — and end the American Jobs Depression.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley.  He writes a blog at www.robertreich.org.  His most recent book is Aftershock.