January 2, 2006
With Responses From
Jan 2, 2006
4 Min read time
Full employment is already a statutory objective of the U.S. government. I know—I helped to write the law.
In 1976, as a young staffer for the House Banking Committee, I was tasked to a working group led by Congressman Augustus F. Hawkins; Leon Keyserling, the second Chair of the Council of Economic Advisers; and other liberal stalwarts. Together, we drafted what in 1978 became the Humphrey-Hawkins Full Employment and Balanced Growth Act.
My responsibility was to craft obscure provisions amending the Federal Reserve Act in an effort to ensure that the central bank would play ball. Eventually the goals of “full employment,” “balanced growth,” and “reasonable price stability” were written into the preamble of the law—oddly some now call them the “dual mandate”—and the central bank was ordered to report semiannually to Congress on progress toward these objectives. It has been doing so ever since.
In fact the Federal Reserve Act amendments were the only part of Humphrey-Hawkins that worked out. The Senate cut the planning heart from the bill. The press was hostile. Enactment changed nothing at the Carter White House. I skipped the great luncheon called to celebrate the bill’s passage and turned to writing my first published article, entitled “Why We Have No Full Employment Policy.” Into the early 1980s I organized the Humphrey-Hawkins hearings, at which Federal Reserve Chairman Paul Volcker would defend the savage monetarism that had ripped open America’s industrial core and driven unemployment to 11 percent. A sense of irony came in handy.
The Humphrey-Hawkins hearings did help to establish—in law, the Federal Reserve, and the minds of the public—that under the Constitution the Federal Reserve must account to Congress. In the hands of more capable members, Congress has sometimes used the hearings effectively. There is wide agreement that accountability has improved monetary policy, protecting the Fed from the reactionary dogmatism prevalent in Europe. The Fed also now values the hearings as opportunities to communicate with the public—something it rarely did before. A few deeply gullible mainstream economists even credited this process with bringing on the “Great Moderation” in economic outcomes—but that was before the crisis, of course.
None of this amounts to a full-employment policy—not even close. No part of the government acted as though the mandates mattered. The interim goals of Humphrey-Hawkins—4 percent unemployment and 3 percent inflation—were not achieved for twenty years. They were achieved, though, and a useful effect of that achievement was to refute the nonsense notion—until then barely challenged—that runaway inflation would necessarily result from full employment. But the success was transient, like the information-technology bubble that produced it.
This history shows that you cannot make elite policymakers do what they do not wish to do, simply by ordering them to do it. You can write the law. You can specify the tools that should be used. You cannot make policymakers use them if they don’t want to. And if you ever do get the result you want, it will likely be via a route you did not choose—a bubble, for instance—and with costs that you did not wish to pay. Truly changed policy requires changed policymakers.
The early postwar sensibility—expressed in the 1946 Employment Act—favored “maximum employment, production and purchasing power.” The goal was to prevent a return to the Depression. The United States was a great manufacturing economy, and the law took advantage of this—the factories should be used and the workers employed, full speed ahead.
We need stable institutional funding, planning, and execution over time—an infrastructure bank.
Now, with fifteen million unemployed, Robert Pollin calls for a new emphasis on full employment. But how do we reach it in our present world? A revival of New Deal shovel projects would be foolish—these days that sort of work is done mostly with machines. A general expansion of demand would create jobs, many of them in China. A new bubble (in what?) would be unsustainable. And we have issues of energy and climate that weren’t there in 1945.
Thus strategy going forward should emphasize concrete acts consistent with full employment and other necessary goals. Why not rebuild the country to meet our energy needs and cope with climate change? Putting these in a stimulus bill doesn’t work: when the political winds turn, the projects get canceled. We need stable institutional funding, planning, and execution over time—just the sort of thing delivered best by an infrastructure bank.
An aging population needs high-quality care. We should create competent and flexible agencies to meet those needs. Higher Social Security benefits would also help, covering some of the vast losses inflicted by the crisis. We could use a neighborhood preservation corps to maintain or demolish abandoned housing and reduce blight. Other local public services—schools, firefighting, police, parks, libraries—should be supported through revenue sharing for the duration of the fiscal crisis.
Finally, let’s recognize that millions of workers hit hardest—especially older workers—will never find decent work at any plausible pace of new job creation. Unless something is done, they will grow old filing unemployment-insurance claims and holding transient and mediocre jobs, while new work goes to younger, cheaper, healthier, and more docile people. It’s a futile, ugly waste of their lives.
So how about a temporary early-retirement package—something like full Social Security and Medicare benefits at the early-retirement age of 62, for the next three years? If people retire, joblessness goes down. And the newly retired become sources of demand for labor rather than weak and frustrated competitors for jobs. It’s not the solution for all time, but among all the proposals I’ve heard, it’s the only one that, if done right, would work quickly on a large scale.
In short: full employment, let’s do it—but in ways and for reasons that fit today’s world.
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January 02, 2006
4 Min read time