On jobs: Be bold, Obama
President Barack Obama’s State of the Union was all about jobs. He said the word 23 times, often congratulating himself on having helped create 4 million. He urged a “year of action” to make more jobs, raise wages and create opportunities for social mobility. Then he set out on a jobs tour to persuade large companies to start hiring and pay more.
But if we assume the Tea Party-dominated House of Representatives is not going to help him here and will block any new public borrowing for infrastructure projects, what is the president to do?
Perhaps he needs to do little. The economy is slowly growing, with the number of new jobs increasing at roughly 200,000 a month, and the number of out of work Americans has been falling. The unemployment rate — using the latest figures, from December 2013 — shows unemployment at 6.7 percent, lower than at any time since October 2008. At its most severe, in October 2009, one in 10 Americans was out of a job.
The problem is, the jobs created since the 2008 financial collapse are paying far less than the millions of jobs lost. For many, this “new normal” suggests the recovery has been “L”-shaped — not a bounce back to former prosperous times. With fewer workers earning less, the multiplier effect of domestic spending that can set off a true recovery is severely diminished.
The president is working on getting more money into pay packets. As well as trying to get Congress to extend unemployment benefits for those without jobs for a long time, Obama is now urging the raising of the minimum wage. Since the House is unlikely to agree to adding to labor costs by such a measure, the president has gone his own way, using executive powers to unilaterally raise the wages of the lowest-paid federal contract workers.
As there are only 2.7 million federal workers — 4.3 million if you add the military — the economy will be boosted. But not by much. (It is worth mentioning, en passant, for those who believe America is being stifled by too much government, that the figure of 2.7 million federal employees is the lowest since 1966. Over the two terms that President Ronald Reagan urged “small government,” for example, his federal government employed between 2.8 and 3.1 million.)
House Speaker John Boehner (R-Ohio) in an unusual outburst against the Tea Party minority who have been making his life misery, suggested there would be no more shutting down the government or limping from debt ceiling drama to failure to agree on a budget drama. But that does not mean House Republicans are going to support any government actions that would help put Americans back to work. The Tea Party and their billionaire backers do not believe the government should intervene in the economy, full stop. The president must find another way.
The Federal Reserve under new chairwoman Janet Yellen can be expected to play its part — even as its strategy of pumping of billions of dollars into the economy through quantitative easing (QE) has run its course and is being wound down. QE has largely been thought of as a Keynesian maneuver, because it implies government agencies trying to change economic outcomes — though John Maynard Keynes did not believe monetary policy would be adequate to lift employment.
During House hearings into the Banking Act of 1935, Representative T. Alan Goldsborough asked Fed Chairman Marriner Eccles whether monetary policy could be used more aggressively to shorten the Great Depression. “There is very little, if any, that can be done,” Eccles replied.
“You mean you cannot push on a string?” asked Goldsborough.
“That is a very good way to put it,” said Eccles.
Whether QE introduced more recently by the former Fed Chairman Ben Bernanke helped the current timorous recovery is still uncertain. But one thing is clear — it cannot be used to turn the low-wage, high-unemployment United States that we are living in into a burgeoning economy that helps everyone.
There has been a good deal of excitement at the intellectual journey made by Narayana R. Kocherlakota, president of the Federal Reserve Bank of Minneapolis and a member of the Federal Reserve Board. Once he was against QE and all attempts to change the economic weather through monetary means. He was even against Obama’s 2009 $1 trillion fiscal stimulus.
Now he thinks the Fed should do more to help the long-term unemployed. “There’s a temptation to think of this problem as being beyond what we as monetary policymakers can address,” Kocherlakota said. “We shouldn’t let the persistence of the problem lead us to the conclusion that we shouldn’t do more.”
He says the economy’s sluggishness is not based on lack of liquidity in the system but a lack of skills in the workforce. “Firms have jobs, but can’t find appropriate workers. The workers want to work, but can’t find appropriate jobs” he said. “Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers,” he said. “But the Fed does not have a means to transform construction workers into manufacturing workers.”
Kocherlakota thinks that before the Fed abandons attempts to boost the economy, such as keeping interest rates low to the horizon, the unemployment rate must fall to 5.5 percent rather than the current 6.7 percent. He therefore confirms the central bank’s top priority — to create jobs rather than curb inflation — embraced by Bernanke and other central bankers, including Mark Carney of the Bank of England.
But even with interest rates kept low, there are more things the executive branch can do. Such as public works projects like the fourth stage of the Keystone XL pipeline to ferry oil from Canada to U.S. refineries on the Gulf of Mexico. The arguments for and against the pipeline mostly concern the trade-off between damage to the environment and jobs.
The most recent report to the State Department downplays the environmental risk, opening the way for Secretary of State John Kerry to decide to go ahead with stage four. The review estimates the two-year building project would create 24,000 new jobs, direct and indirect, of which 3,900 would be temporary construction jobs. Though the completed pipeline would only need 50 people to administer it, it would still boost the economy by $3.4 billion.
In the current circumstances, it seems inconceivable the president would back the argument of anxious environmentalists over the creation of 24,000 new high-paying jobs. Yet he is hesitating.
If Obama means what he said about needing to create more high-paid employment for Americans, the Keystone pipeline decision should be easy. Sometimes it appears that the president lacks courage to contradict his own supporters as much as being unable to confront Republican intransigence in Congress.
Obama has little to lose, however. It is either being locked in the ice by his congressional enemies or breaking out and doing what is needed. What is needed is the old Churchillian adage of “Action this day.”
The courts will soon tell Obama if he has overstepped his competence. As Robert Frost put it, “Freedom lies in being bold.”
Nicholas Wapshott is the author of Keynes Hayek: The Clash That Defined Modern Economics. Read extracts here.
PHOTO: President Barack Obama delivers remarks on the economy at Costco Wholesale in Woodmore Towne Centre in Lanham, Maryland, January 29, 2014. REUTERS/Yuri Gripas