The Policy Bedrock of a True New Deal

Today we are besieged by compounding crises: disease, economic catastrophe, authoritarianism, a world wrought by four hundred years of white supremacy. When the reality is so stark, a clear path forward is essential: real solutions to our problems, and the muscle to implement them.

Three quarters of a century ago, at the height of the Great Depression, Franklin Roosevelt understood this instinctively. Running for the White House as unemployment soared to 25 percent, he accepted the Democratic nomination by pledging a New Deal for the American people—competence and courage, work and security. His presidency made good on that promise. On the campaign trail and in the Oval Office, Roosevelt gathered advisors from academia, charitable organizations, and state government to create scores of programs, from bank regulation to job creation, that reimagined the state’s role in our economic transformation.

Without question, the original New Deal was in important ways unacceptable. It left in place, and in some cases built, laws and practices that excluded Black and brown Americans, especially women, from jobs, social insurance benefits, the right to organize. Today it is imperative that we heed all of the original New Deal’s lessons. We can be inspired by its strengths and at the same time overcome its flaws by leading with inclusion, utmost and intentionally by race.

The vision of a True New Deal today is both warranted and hard-won. Our basic understanding of the economy is very different than it was during the financial crisis of 2008. A decade ago, close to nine million Americans their jobs, while some ten million lost their homes as White House officials limited recovery spending for political reasons and prioritized saving the financial system. The result, now widely criticized, was a painful low-wage recovery and persistently sluggish GDP growth.

In 2020, mainstream economic views are different. Experts who hesitated on relief spending in 2009 now say that Washington needs to end its debt obsession; they warn of the problems of corporate concentration. We have a new consensus: a healthy economy and a healthy politics are impossible when concentrated corporate power is unchecked, and is therefore able to shape politics to favor the wealthy at the expense of everyone else.

That insight has given us fresh ideas and sharper tools. Perhaps most important, the new economics is backed by the solidarity of a range of increasingly powerful political activists. From the Movement for Black Lives to the Green New Deal coalition, movements are asking for the same basic things: a government that spends its money and political capital not on punishment, incarceration, and the status quo, but on education, jobs, care, and transformation.

The November election could prove pivotal. As political leaders strive to provide relief to a battered country, they must draw on the lessons of the last decade and restructure the systems that gave rise to the pandemic’s underlying inequalities. Decency and empathy—sorely missing from today’s White House—are first steps. Now is the time to hold the bar high. Any solutions worth implementing must prioritize the interests of those who have suffered the most from the pandemic: Black workers, immigrants, women in low-paid jobs caring for the young and the elderly, small business owners without money in the bank or access to credit. We must also remake our systems of economic governance so that people historically excluded have seats at the table, set the agenda, and get the outcomes that they demand.

Whether Democrats actually seize the opportunity is the central question. In recent weeks, Joe Biden has called for racial and gender inclusion, bargaining power for workers, and the transformations to a clean, decarbonized future. This could be the beginning of recovery and reform on a Rooseveltian scale. The good news is that our real-life actions can clear the rhetorical bar. Here are five ideas that ought to be central to our path forward.

 

1. A Federal Jobs Guarantee

COVID-19 has created record joblessness, with thirty million people claiming unemployment benefits as of July 2020 and high levels of unemployment likely to persist through at least 2021. If the Great Recession is any guide, the private sector will not move swiftly enough or equitably enough to put enough people back to work, let along ensure inclusion, strong growth, or good jobs with high wages and real benefits.

One answer is a federal jobs guarantee: a federally funded, locally administered program that would provide financing to state and local governments for jobs that meet employment standards, including a minimum salary, a set of benefits, and a clear path to unionization. As recently discussed by economists Sandy Darity, Darrick Hamilton, Mark Paul, and Pavlina Tcherneva, a jobs guarantee would function as an entitlement, like Social Security, and ensure that people who are denied employment or face discrimination in hiring have legal recourse.

A jobs guarantee would go a long way toward solving perhaps the central problem of the COVID-19 era. Businesses are reopening under conditions of great uncertainty, meaning that workers who are able to rejoin the labor market will do so under worse conditions, with lower earnings and less safe working environments. The jobs guarantee would also begin to correct for longstanding labor market problems, intractable and worsening under free-market fundamentalism, in which Black and brown workers, especially women, are least likely to be employed, and where they have work, they are overrepresented in lower-paid positions. Throughout the pandemic these jobs have been deemed “essential” positions and pose great health risks, and long before coronavirus these were still bad jobs in which workers were trapped. And last, a jobs guarantee fits well with one of the most optimistic ideas to come out of the new economics: the Green New Deal, a mass mobilization effort to put Americans to work on building a decarbonized economy. The jobs guarantee can help ensure that those who typically are the last hired—Black and brown workers—and those who lose fossil fuel jobs can all benefit from just transition.

New Deal–era jobs programs show that federal job creation can have lasting benefits. The best known today is the Civilian Conservation Corps, which employed three million young Americans, overwhelmingly men, on environmental projects; CCC members built national parks and planted three billion trees. But other programs run by the Works Progress Administration (WPA) employed builders and construction workers on infrastructure projects from airports to schools and parks, and also provided work for artists, musicians, and writers. Today’s job guarantee must of course correct the race and gender disparities built into the 1930s programs, but the New Deal example is nonetheless instructive.

We cannot hope to climb out of this economic crisis without addressing the job loss it has created. In doing so, we can also fundamentally change the labor market in ways that increase worker power, address race and gender discrimination, and lift people out of poverty and precarity.

 

2. Universal Public Childcare

Our childcare system is unsustainable, at once too limited and too expensive, with jobs that pay poverty wages. This is bad for families, workers, and our economic health. As COVID-19 has made abundantly clear, our economy hinges on care work. Across the country millions of parents, if lucky enough to still have jobs, are balancing work obligations with full-time childcare needs and homeschooling. But even as the pandemic has highlighted the critical role that childcare workers play, it has threatened their long-term livelihoods: childcare centers across the country have seen significant drops in enrollment and even closures, nearly half of which could be permanent. Even as centers reopen, necessary health restrictions will drive up expenses and limit enrollments.

Some of these challenges are unique to the COVID-19 era, but many are long-standing, rooted in white supremacist and patriarchal traditions. Policymakers have largely treated childcare as a private problem to be solved by individual families. Americans undervalue and ignore care work in large part because for centuries it has been conducted by women, often women of color, outside of the traditionally defined labor market. The result is counterintuitive: the United States as a whole underpays for childcare—among OECD countries, we are third from the bottom in terms of public spending on childcare—but individual families still cannot afford their limited options. At the same time, roughly half of childcare workers earn so little that they must rely on government assistance to survive.

Childcare must be built anew, and it cannot be built on the private market, which does not produce enough childcare slots to adequately support working parents. We must go beyond the current approach of subsidizing private spending through childcare tax credits and block grants. Instead, the federal government should invest directly in building the nation’s childcare infrastructure.

Again, the New Deal itself provides inspiration. The federal government has invested in large-scale childcare programs in the past. In the 1930s and ’40s the WPA operated emergency nursery schools, partially as a means of employing unemployed teachers. During World War II the government funded childcare centers in communities with defense industries. And the 1946 Hill-Burton Act, which provided federal funds for public health centers, provides a good model for today: survey needs, and then site and build new childcare centers. We can focus on equal access to care, prioritizing childcare deserts and then moving to locations where there are no affordable options.

Expanded access to childcare would strengthen our economy by improving productivity and creating jobs. Even pre-pandemic, U.S. businesses lost an estimated $12.7 billion annually because their employees lacked stable childcare. Further, creating enough childcare spots would massively expand the childcare workforce. A comprehensive investment in childcare could almost double the number of children in formal childcare, requiring a rough doubling of the formal childcare workforce to three million teachers. Public, universal childcare could create millions of high-quality jobs, which would especially improve employment for Black and brown women.

Beyond these immediate economic benefits, a robust and stable childcare system would remake power structures for women. Women’s labor force participation in the United States has stalled over the last decade even as it has continued to rise in other countries. Millions of parents, disproportionately women, have to leave the workforce or accept lower wages because they lack childcare; notably, Black mothers are more likely to only have the latter option available to them, and mothers are far more likely than fathers to say that they experience career problems due to lack of stable childcare. Making it easier for women to stay fully in the workforce when their children are young and raising the wages for predominantly female-held childcare jobs are both critical for a healthy post-pandemic economy.

 

3. Debt Cancellation and Eviction Moratoriums

For most Americans the costs of basic goods—housing, education, health care—have risen faster than incomes over the last several decades. People turned to borrowing and credit as a way to pay for what they needed, and as a result, Americans hold record amounts of household debt. Today their inability to repay it is holding back economic recovery. As of March, total household debt stood at a record $14.3 trillion; some delinquencies, especially on student loans, have been increasing, with younger borrowers and borrowers in the South most at risk. At the same time, rising housing costs relative to incomes have put an estimated 30 to 40 million Americans at risk of losing their homes.

The picture is one of severe precarity for millions. Given record unemployment, and with the future of any further Congressional relief package entirely uncertain, lost earnings due to COVID-19 will intensify delinquency, default, and the threat of eviction. At worst, this could result in debt spirals or bankruptcy cascades that engulf small and medium-size businesses as well as workers and their families. But even at best, ignoring household debt represents a missed opportunity to boost economic growth. Studies show that debt cancellation yields positive results for both individuals and the economy overall, increasing consumption and improving employment outcomes. Forcing precarious families into homelessness is often a cause of deeper poverty, including weak educational outcomes for children and worsening job and criminal justice prospects for adult family members.

The good news is that we can cancel debt and provide federal relief for people who are housing insecure. Because the federal government owns the vast majority of outstanding student debt, canceling it is relatively straightforward: through legislation or executive action, using the Secretary of Education’s existing authority, the government can voluntarily end borrowers’ obligation to repay their federal student loans or modify the loans to zero. The government can also pay down the principal on private loans and cancel borrowers’ obligations.

Given the looming housing crisis triggered by the pandemic, rent cancellation and mortgage reduction are also critical. One direct solution is for landlords, who would receive federal relief, to suspend rent payment. This would ensure that undocumented individuals and others who would otherwise be excluded by vouchers or cash assistance could keep their housing. The federal government could further establish a facility to purchase mortgages and modify repayment terms based on the appraised value homes. A revised bankruptcy code could also allow homeowners to modify their loan terms in bankruptcy. All of these are far preferable alternatives to eviction and foreclosure.

Debt cancellation and housing relief are important for reasons far beyond the pandemic. Student debt woes in particular aren’t the result of profligate spending and irresponsible borrowers. Rather, student debt more than doubled in the decade after the Great Recession because of policy choices, as the government’s response to crisis was austerity, cutting funding for public universities and encouraging debt-financed education as a way to boost employment. Similarly, increased housing costs are a symptom of zoning and other policies that fail to adequately provide affordable residency, especially for low- and middle-income families. All of this affects families of color far more severely.

Ultimately the solution to these problems is more public provision of public goods, including universal health care and free college. But in the interim, debt and rent forgiveness can forestall bankruptcy spirals and benefit families as well as the broader economy.

 

4. Federal Charters for Corporations

The relationship between corporations and the American public is broken. In good times, companies reward executives and shareholders, and in bad times, companies expect and receive bailouts. Workers are rarely the beneficiaries, but it doesn’t have to be this way.

Corporations derive their very existence—and the special advantages that come with it, like limited liability for shareholders—from the government. But for the last five decades they have steadily strayed from behavior that builds shared prosperity toward practices that maximize profit extraction and prioritize short-term profits over long-term stability. U.S. corporations started to shift toward this “shareholder value maximization” approach in the 1980s. Instead of balancing the needs of all their stakeholders, corporations focused narrowly on sending as much money as possible to shareholders. That shift contributed to a variety of economic harms: wage stagnation for workers, declining long-term investments and innovation, and slowing worker productivity.

This emphasis on shareholder value maximization made the U.S. economy more vulnerable to COVID-19 and blunted the ability of government aid to address the pandemic. Workers who earned low wages at companies like Walmart, Amazon, and McDonald’s had little cushion to help weather the economic downturn. In the decade prior to COVID-19, U.S. corporations spent $6.3 trillion on stock buybacks and ran up historic levels of debt, leaving them ill equipped to withstand the crisis and necessitating more taxpayer support.

Yet here again, corporations’ shareholder-first perspective confounded government’s efforts. Despite ample evidence that the biggest corporations would be the least likely to use government aid to help their workers, Congress and the Trump administration designed relief efforts so that aid to big corporations came with the fewest conditions to direct that relief to company employees. Large corporations are taking advantage of the government’s interventions, yet some have fired workers while continuing to issue shareholder payouts in the form of dividends. To address these problems at their root, we must reform the way corporations make decisions.

Large American corporations (say, those with over $1 billion in annual revenue) should be required to obtain a federal charter—not just a state charter as required under current law. Building on the successful “benefit corporation” model that many states have adopted, the federal charter would create a legal obligation for the corporation to account for the public effects of its actions. The federal charter would also make clear that the corporation owes duties to its workers and other stakeholders, not just its shareholders. That would create an enforceable legal obligation requiring corporate boards to consider and balance the interests of all of the company’s stakeholders, rather than focusing narrowly on the interests of shareholders. Additionally, worker representation on corporate boards provides a variety of benefits and can be federally mandated; Congress should require that a proportion of the directors for any corporation be elected by the corporation’s employees.

Corporations are creatures of public permission; they exist, and enjoy special privileges, because of rules established by governments. COVID-19 has shown, yet again, that we should simply write better rules—of governance and of taxation—so that corporations are engines of economic health.

 

5. A Public Option for Capital

As we strive not just to rescue but also to reform our economy, we need public capital and the tools to deploy it. The pandemic has revealed that essential supply chains, especially in pharmaceuticals and medical supplies, are broken. Our inability to respond effectively to COVID-19 shows that we are in no way prepared to combat the human toll posed by the a rapidly warming planet. We are stuck in a late-stage service economy that is overinvested in finance and retail and underinvested in technologies and services that will drive rapid decarbonization.

To help transform our economy, federal government must become a greater engine of economic innovation. But our current federal policy structures simply do not have the tools to help direct public capital in ways that build new markets and promote the public good. A public option for capital would be a much-needed alternative to private capital.

This is especially important given the speed and the scale of transformation necessitated by the climate crisis. Where private capital favors short-term returns and is relatively indifferent to broader social or economic utility of investments, public capital can be used to invest in projects with longer-term or uncertain profitability outlooks. It can focus on directing industry to meet larger public goals. Where private capital steers companies toward practices that benefit investors, whether stock buybacks or leveraged buyouts, taking public stakes in companies can steer them toward practices that strengthen productivity, minimize extraction, and support workers.

One option for public capital is a modern Reconstruction Finance Corporation (RFC). The RFC was a New Deal–era government institution that lent and invested tens of billions of dollars throughout the economy in the 1930s and ’40s, solving complex industrial problems and even creating whole industries from scratch. It used loans as a primary tool but also purchased preferred stock in banks, giving it an ownership stake and voting rights in companies. In some cases, the RFC used those voting rights, voluntary agreements with industries, and eligibility requirements for loans to shift business practices away from corporate extraction.

As in the New Deal era, we need coordinated capital that can help drive our economy’s recovery, build economic strength, address looming societal and economic challenges, and improve our resilience to future economic shocks. The effects of the COVID-19 pandemic were intensified by the country’s inability to quickly shift industrial capacity to respond to urgent public needs; months after COVID-19 hit the United States the federal stockpile of emergency medical equipment is still thin. And the pandemic has hurt a range of U.S. industries. Production in factories that present threats of transmission, like meatpacking and auto manufacturing, has been slowed or halted. Demand has decreased across a range of businesses, from travel to non-essential consumer goods and services. With the economy as a whole slowed, we have not been able to meaningfully mobilize stagnant resources elsewhere.

The economy also has deep vulnerabilities far predating COVID-19. Some industries, especially certain medical supplies and pharmaceuticals, are all but absent domestically, leaving the United States at the mercy of shifts in global supply chains. Additionally, many U.S. businesses have made decisions that promote their short-term interests over long-term health, like running up huge corporate debts that make companies susceptible to takeover. And finally, the United States could use a modern RFC to shape and direct the many public investments needed for a Green New Deal: from retrofitting buildings to transforming our transportation sector, from clean manufacturing and to ongoing clean energy research and development.

A public option for capital is absolutely essential to transform our economy.

• • •

These are not the only ideas that could comprise a True New Deal; our new report at the Roosevelt Institute details others. Modernizing our ramshackle social insurance system, starting with federalizing and adequately funding unemployment insurance. New legislation to make anti-trust law relevant in today’s world of corporate giants, and to empower anti-trust agencies with the tools they need to enforce the law. Remaking New Deal–era labor law to ensure that workers can bargain with employers throughout sectors, like fast food or retail, even when they do not share a single literal “shop floor.” Remaking our tax law, starting with the repeal of the horrendously regressive Tax Cut and Jobs Act of 2017, and directly taxing capital and wealth, both in the United States and in tax havens around the world. Focusing directly on racialized wealth by providing public means for asset building, like baby bonds, and considering direct federal reparations to descendants of chattel slavery.

These ideas share common roots. Some require federal spending. All require changing the rules by which our companies and our government operate, and in so doing changing the relationship between the public and the private sector so that each can push the other forward in creating a more resilient, more healthy, more green economy.

This requires that all economic reformers recognize the central role that our democratic institutions play in rescuing the economy and ultimately in restructuring it. And so to remake our economy in the wake of COVID-19, we must remake our democracy. We cannot allow the filibuster—meaning, in practice, one senator even if the other ninety-nine agree—to hold all legislative action hostage. We cannot allow lifetime court appointments and a limited number of seats on the Supreme Court to let pro-business, anti-worker, and anti-consumer policies endure in perpetuity. And we cannot say that we believe that Black Lives Matter when D.C. and Puerto Rico, both majority people of color, do not have federal voting rights.

Shifting power is the answer to shifting policy. Our problem today is not that we have no real ideas to deal with the COVID-19 recession and the deep roots of the inequity it has exposed and exacerbated; it is that we have yet to build the power to make the many good ideas out there a reality. This is the political task before us.