With $300 Billion, The President Could Reduce Unemployment to Zero

By L. Randall Wray and Stephanie Kelton

On Thursday night Barack Obama will deliver his highly anticipated jobs speech. At this point, only those closest to the president know exactly how he intends to help spur the economy and create jobs, but reports suggest that he is mulling a $300 billion jobs package that includes more of the same—a one-year extension of the payroll tax cut, a continuation of unemployment benefits, some additional spending on infrastructure and tax incentives to encourage businesses to hire and invest in new capital. Too little of what will work and too much of what won’t for an economy that’s teetering on the brink of a double-dip recession and a president who is running out of time to deliver jobs.  [Read the entire article here]

15 responses to “With $300 Billion, The President Could Reduce Unemployment to Zero

  1. Giving a one percent or two percent cut here and there adds up to a lot of money, but not any substantial amount to anyone smaller employer who may be in an industry that could act on it. This job plan SUCKS!!!!!!, Obama brought thousands of small knives to a gun fight!!!!ELR.ELR.ELR.ELR.ELR.ELR………….someone listen pleaseOllie

  2. The big problem (as Wynne Godley would be telling Randy now) is the $600 billion or so demand leakage created by the trade deficit. It can be dealt with the hard way (Mitt Romney just announced support for currency tariffs on China) or the easy way…That is, amend the Budget Act so public investments are counted on-budget only to the extent that capital spending exceeds capital surplus. In 2010, public investment spending, per OMB, on "physical capital, R&D, Education & Training" was $560 billion, 40% of that was defense. The capital surplus (inverse of trade deficit) was $500 billion. As mixing apples and oranges go, subtracting capital surplus from capital spending sounds perfectly reasonable and it would have taken all but $60B of last year's public investments off-budget. When the annual trade deficit jumps, as it has this year, from $500B to $600B, this larger demand leakage can be filled with additional off-budget capital spending. And if one fine day, the trade deficit drops to 0, then putting this de facto capital budget 100% on-budget would accurately reflect its AD impact.In terms of countervailing powers, the Chamber of Commerce, AFL-CIO and defense contractors (and indirectly, the Chinese government) would all benefit politically from this. What's more, if Social Security Act's unemployment compensation title were amended to include a Jobs Guarantee, the JG spending could be legislatively defined as "Education and Training" (after all, that Georgia Works program is considered job training). That'd put the JG off-budget too. :o)

  3. I'm sorry I didn't go back to the well with the funding mechanism. To the extent public investments are off-budget, Tsy could fund them by depositing platinum coins with Federal Reserve. A $1 trillion Reagan coin seems excessive for the purpose of buying, say, an aircraft carrier. For some reason, a $15 billion Gerald R. Ford platinum coin seems appropriate. :o)"The occasion: the ceremonial cutting of the first piece of a $15 billion aircraft carrier slated to weigh anchor in 2020. That ship — still unnamed — will follow the just-as-costly Gerald R. Ford, now 20% built and due to set sail in 2015."http://www.time.com/time/magazine/article/0,9171,2065246,00.html

  4. As usual, beowulf offers us a winning idea that, to the bewilderment of most professional economists, does not begin with an analogy involving coconuts and castaways.I suffer intellectual whiplash going from solid plans and sectoral balances to what passes for mainstream discourse. On the one hand, we have proposals to actually lower unemployment and help the private sector save; on the other hand, the smart members of the FOMC basically say, "Umm, well, maybe the Fed should…buy another couple hundred billion dollars of riskless assets? Not too much, though, or we'll lose credibility. Credibility is really important, because if public expectations change, our unlimited ability to buy things and move interest rates will somehow stop working."[email protected]#$. [email protected]#$ [email protected]#$ [email protected]#$.

  5. As stated, I'd like to see Federal Act One brought back as part of this- cultural arts and record keeping are important infrastructure the we've been neglecting as badly as physical infrastructure, except in their most commercial and corporate forms.But on the basic idea, a pure jobs guarantee, while much better than where we are now, doesn't seem to address some of the issues that occur at the border of social and economic issues ($20K is just fin for an individual, but if you've got a family of four, you're not getting them over the poverty line, forcing both parents to work and use daycare rather than being able to pick who generates income and who attends to domestic needs.What, if any, would be the issues with combining the concept of a ready labor pool with an income grant? Instead of paying what's effectively $10/hour (20K/year) for the pool, give every adult the tax-free equivalent of $5/hour full time ($10K/year) and every child half that ($5K/year), and then establish the ready labor pool at $5/hour. So now the individual still gets a baseline of $10/hour in the pool, but the family of four ends up with the equivalent of $20/hour with one member in the pool, without having to make any wage-end or tax adjustments for family size. Secondary advantages here would be reducing the marginal cost of labor to businesses as well by removing their need to account for basic support, and it would help encourage entrepreneurship, because the level of risk associated with quitting a given job to attempt to grow a personal business would be greatly reduced. Would some people find a way to live on the meager reduced amount and do nothing useful? Sure, but the small number that accounts for would still be consuming enough to support those that didn't want to live at such bare levels in finding better paying employment. As it stands right now, we're suffering from far too many people getting into the workforce, with not enough work to do, not too few.

  6. This article by Wray & Kelton, on the surface, appears to be concerned with creating jobs. But the underlying motive also appears to be about fixing capitalism. Capitalism has developed into something that was not predominant 50 years ago – it used to be about producing things by exploiting workers directly. Today, it's more about not producing things and about profiting by speculation on things which already exist. Whether it is equities, real-estate, or the insurance derivatives marketed by pirate clubs of rich people who gang together to profit from the misfortunes of others (they get their premiums by promising to pay out enormous sums of money to airline operators, ship owners, or other speculators betting on Greek debt, if there is a disaster or default. Because they haven’t got the money to actually pay if there is a disaster/default, they ‘reinsure’ with other groups of rich people, who themselves reinsure – all of course taking their cut.) Although Wray & Kelton are to be congratulated for being economists who are focused upon the deteriorating conditions created by the development of capitalism away from production towards pure speculation, shouldn't their efforts be focused upon the cause not on the effects? Regardless of form, capitalism, whether financial or industrial, is, essentially, based upon exploitation. I have yet to hear very many, if any, contemporary economists even admit to this – so, we don't need to hear more calls for a better, kindlier, more humane capitalism. It is an oxymoron. Capitalism has rarely been able to efficiently allocate resources. And in their competition amongst themselves, capitalists have always resorted to wars when their markets are in crisis. As Minsky noted "Keynes also believed that `if nations can learn to provide themselves with full employment by their domestic policy … there need be no important economic forces calculated to set the interest of one country against that of its neighbours.'" But if capitalism could do this, it wouldn't be capitalism. Capitalist economies are systemically flawed – unstable and unequal, unworkable and unjust. They have always led to wars and are doing so again.

  7. Anonymous, thanks for the kind words. Since the President's Georgia Works proposal is kinda sorta like a Jobs Guarantee, congressional progressives should amend the bill language in the least number of words to create a real JG and then draw a line in the sand. Karl, The political problem with income grants is that the budgetary cost (i.e. what the politicians care about) is double what it'd be if the same per-family support were structured as a negative income tax. See Philip Harvey's "The Relative Cost of a Universal Basic Income and A Negative Income Tax".http://www.philipharvey.info/particles.htmlI'd be remiss to not mention that Harvey is a JG supporter, he has the better idea of supplementing JG with day care, medical coverage, housing vouchers and tax credits. Call that "welfare reform "and you might get conservative support as well. :o)http://www.multiplier-effect.org/?p=1632#comment-4318

  8. I was asking from the economic perspective, not the political perspective- as far as politics goes, all of this is wishful thinking until we can get the basic concepts accepted on a wide enough basis to gain real traction.Looking at Harvey's articles, it seems he, at the very least, makes the mistake of creating a false equivalence between different types of nonproductive time (equating leisure time and impoverished/unemployed time) and assumes that poorer people will trade working time rather than impoverished time for leisure time given a better baseline income. He also ignores the psychological effects of poverty that, even without other economic traps, outright discourage productive work, because the short term costs are insurmountable, regardless of long term rewards. (Never mind the significant increases in productivity that would come hand in hand with removing poverty stress from those workers who do currently continue to try to work under those conditions)The upfront price tag is certainly higher (though the savings on overhead and other layered programs that it could replace with one simple, automatic package would help to defray that, and if it were indexed as a proportion of the poverty level and coupled with some form of debt relief in deflationary times, the actual cost may easily drop significantly as labor dependent prices adjust to match the lower wage mark (assuming that using the job guarantee would displace the need for a minimum wage, using competition from the labor pool instead as the benchmark that other companies have to compete against, either on price or relative desirability of the work.) Most critically he errs on the assumption that we need a labor force as large as the one we currently have when instead we should be taking more of our productivity on the whole as leisure and allowing automation technology to be more fully deployed instead of blocking it in the name of keeping more jobs available. He also assumes that the income grant would be accompanied by FICA and, apparently, a flat tax. I think it would be better to eliminate FICA and instead use a progressive scaling that only began to perhaps cut a bit deeper at income levels that correlate with large scale financial investments and allowing capital expenditures- investments that actually improve productivity rather than profiting from private debt- to be deducted as business expenses.A negative income tax could certainly be structured similarly, but it would require significantly more administration and the visible loss of a benefit as income increased would, I think, actually result in far more tax evasion than a simple static grant that was independent of income. The NI also doesn't serve as well to reduce the overall face cost of labor except to allow more resolution at the bottom end- the median income wage with it would be about the same as the median income wage now, rather than effectively deducting it across all wages and allowing for a a lower nominal median point that conveys the same level of overall wealth.(At that point, I'd also suggest that Social Security be revised to account for the Grant as its baseline, and then be paid as a pension above that grant based on previous wage history. I'd also suggest allowing people to claim it, at a proportionally imputed value, at any age, on the understanding that any work they do while claiming it will not increase their future benefits; effectively- allow anyone to retire and draw on their pension for support when they feel comfortable doing so or wish to use it to create a capital stake for a personal venture or as an alternate to the current disability system or entering the ready labor pool if they had already worked sufficiently to step aside.

  9. Why are payroll tax cuts for corporations a good thing? Isn't the defunding or bankruptcy of Social Security a goal of US right-wing/"Wall Street"?In what ways do you agree or disagree with this analysis from wsws.org:?"Of the $447 billion cost of the package, more than half—$240 billion—is to come from cuts in Social Security taxes for employers as well as workers that will drain the bedrock retirement program of resources and fuel demands for drastic cuts in benefits and eligibility. Employers will get $65 billion of the tax windfall.In essence, Obama is demanding that the American people mortgage what is left of their future to pay for a relative handful of new jobs."

  10. @andrewlylehartman;Hi Andrew,One of the important things MMT discloses is that Social Security is a transfer payment constrained by the real output of the economy, not by money. If retirement programs need to be pre-funded into a "Trust Fund", why don't the Germans have one? Likewise this British, French, Swedish, Japanese, etc. etc. We're the only ones I know of who play this game of "saving" our own fiat currency. To fund the transfer of real goods and services from the working-age population to the retirees, the U.S. government can issue whatever number of fiat dollars it needs to. But if the real economy is damaged by decades of neoliberal abuse and neglect, it won't matter what's in the "lock box".Cutting payroll taxes, whether on workers or companies, lowers the cost of doing business and increases competitiveness. We should abolish FICA for everyone and do it permanently. We need to have the political fight over what SS and Medicare really are and defeat the finance-insurance predators that parasitize them. TINA – There is no alternative.Cheers

  11. Beowulf,The foreign capital surplus already reflects an equal shortage of domestic saving for domestic investment, quite apart from government expenditures.“Assigning” the capital surplus to government capital expenditures doesn’t change that.Besides, somebody else may want to get in the queue and assign it as vendor financing for the current account deficit.

  12. “Assigning” the capital surplus to government capital expenditures doesn’t change that.Sure it does, you don't think the coin seigniorage used to pay Northrop Grumman for the carrier will add to domestic sector savings?. Maybe it will help if you think of this as a magic show on the Santa Monica pier.http://kaylias.blogspot.com/2007/01/pledge-turn-andthe-prestige.htmlThe Pledge– Stage left and stage right are two lovely assistants, "the beautiful twin sisters, Capital Budget and Capital Surplus" (they're from Korea, where family names go first). Note the indirection, they're not really related (or from Korea). Its a federal govt capital budget– not GDP nor even govt sector but only Federal spending, meanwhile its a GDP capital surplus, its basically by happenstance they sound related and look alike (in terms of size).The Turn–Capital Budget and Capital Spending walk towards each other behind a curtain and vanish, leaving behind only the change in their pocket, including one particularly shiny coin. That alone is enough to shock and awe Members of Congress like nothing since the invention of hair transplants. But wait, there's more.The PrestigeWe throw this shiny platinum coin into the ocean and it turns into… an aircraft carrier! The Navy will find this part of the show most agreeable.

  13. Sorry, in The Turn I meant Capital Budget and Capital (account) Surplus. And to be precise the change was left behind from Capital Surplus's pockets.Using capital (that word again!) ships as our medium of exchange, $600B capital surplus this year is equal to 40 Ford-class carriers.

  14. Beowulf always gives us pure genius, as well as more than a few laughs.

  15. Thanks Lets, to paraphrase Shakespeare,Countervailing Power, thy name is Second To None.(Remember, 40% of $560B in public investment spending is defense-related)."On Tuesday, a campaign called “Second To None,” backed by the largest names in the military contracting industry, is staging a “march to the Hill.” These contractors will be armed with fresh talking points and backed by 843 lobbyists (many of whom are former staffers of deficit committee members), along with deep campaign donation histories with the members. Every bit of this influence will be used to prevail upon the committee not to call for cuts to military spending in its final report to Congress."http://my.firedoglake.com/robertgreenwald/2011/09/13/corrupt-contractors-make-their-move-on-the-deficit-committee/