(The Economic Policy Institute has developed a FIVE POINT working people’s agenda to provide a planning guideline for the new Trump administration to put Americans back to work and provide a benchmark to judge whether or not President Trump is really the workingman’s president he pledged to be in his campaign. This is Point 1.)
PART 1: Restore full employment as a primary policy target
In an economy genuinely at full employment, unemployment is low enough to make employers constantly compete for workers. Because employers must offer wages that rise in line with economy-wide productivity, wages of most workers rise year after year.
American workers have not had this kind of leverage for at least 15 years, and have had it only sporadically since 1979. As a result, even as productivity has increased, workers’ wages have essentially stagnated.
We’re short of full employment today because the economy is still short of demand (spending by households, businesses, and governments).
To boost demand and lower unemployment, policymakers should:
- Launch a long-term trillion-dollar public investment program that provides an immediate increase in jobs but also ensures long-term productivity gains.
After years of a public investment drought, America needs bold investments in infrastructure, clean energy, scientific and medical research, early child care, education, and health care delivery. If done right, such investments would create jobs right away and yield higher productivity in the future. EPI specifically proposes a 10-year, $1.2 trillion dollar public investment program.
To provide an immediate economic stimulus, the first two years of the program would be paid for with borrowing. To minimize the long-run impact on the public debt, the final eight years would be financed through progressive tax increases. A straightforward, taxpayer-funded effort would ensure that the benefits of investment flow through to the Americans and the communities that need them.
A plan that relies on giving tax credits to unaccountable private partners, as has been proposed by the Trump transition team, could bypass underserved communities unable to provide profitable revenue streams while transferring too much ownership of public goods to private firms.
- Reverse damaging spending cuts pushed through Congress in 2011.
The reversal of across-the-board federal budget cuts mandated by the Budget Control Act of 2011 would give a fiscal boost to growth over and above the public investment program.
- Nominate and retain Federal Reserve Board governors who will pursue full employment and wage growth.
Some of the most consequential decisions affecting job and wage growth in the next few years will be the monetary policies made by America’s central bank (the Federal Reserve, or, the Fed). It is important that the Fed not prematurely shut down the recovery with interest rate hikes while there’s still room to grow before reaching full employment.
Too often in the past the Fed has prioritized keeping inflation, rather than unemployment, very low. This is not an accident:
Regional Fed bank presidents are chosen by boards in which finance and corporate sectors have an outsized share of board seats, and these sectors hate unexpected inflation and like having workers who do not feel secure enough to demand large wage increases. Fed governance rules must be changed to ensure that decision-makers represent all interests in the economy, not just business and finance.
- Create public employment programs specifically for areas with unemployment rates that are substantially higher than the national average and with large concentrations of low-wage workers.
We cannot declare victory in reaching full employment until historically disadvantaged communities are also thriving. Preventing interest-rate hikes that would cut off the march to full employment before it reached these still-struggling communities is a critical but only first step. We also need targeted public employment programs that provide the jobs that too often have been scarce for communities of color and in rural areas.
Next week: Agenda Point 2: Strengthen — not gut — rules that support good jobs.