Robert Kuttner for The American Prospect | JULY 19, 2012

The government has the tools to help remedy the jobs crisis, so why isn't it doing anything?

Achieving full employment has been at the center of the progressive project for more than a century. If work is available at decent wages for everyone who wants it, then the rest of the agenda is a lot easier. Opportunity proliferates. People feel a sense of dignity and worth. Human potential is fully utilized. In a virtuous circle, adequate purchasing power has a rendez-vous with the economy’s productive capacity. Tight labor markets give workers the leverage to bargain for decent wages. Social-transfer programs can be reserved for special needs rather than being strained to make up for the fundamental lack of decent income.

As Robert Pollin writes in his important new book, Back to Full Employment, a society with jobs for all “is also the best tool for fighting poverty.” He reminds us that in the era of Lyndon Johnson’s Great Society, unemployment rates fell to below 4 percent, producing “rising wages across the board, better working conditions, and less discrimination against women, African Americans and other minorities.”

After World War II—and after learning the lessons of the Great Depression—full employment was the central goal of the newly invented Keynesian discipline of macro-economics in the U.S. and Europe. Complementary micro-economic interventions such as retraining sabbaticals, work-sharing, and public employment were creatively used in different countries to bridge over the failure of the private economy to provide enough jobs for all. The issue of how to remain at full employment without triggering inflation also commanded extensive public discussion and policy invention.

Lately, the centrality of full employment has fallen into the national memory hole. While unemployment is widely seen as a problem, the phrase “full employment” is rarely part of the national discourse. As the center of gravity has shifted to the right, neo-liberal ideas have displaced Keynesian ones. Other constructs have usurped the policy space—competitiveness, workforce skills, asset-development, education, budget balance, entrepreneurship. Presumably, if we have better-educated and better-trained workers, better-treated entrepreneurs, and better-behaved budgets, the jobs will somehow materialize.

But if the history of the past century proves anything, it's that full employment is a macro-economic question. Ten million workers who were idle in 1940 were fully employed in 1942—not because they suddenly got smarter or better educated, but because government entered over a hundred billion dollars of war production orders. Another 15 million workers who were employed in 2007 were idle in 2009 because of the financial crash and government’s feeble response. They did not suddenly become stupider or overtaken by new technologies. In both cases, the story was macro-economic.

It is the great contribution of Pollin, who directs the Political Economy Research Institute at the University of Massachusetts at Amherst, to restore full employment to its rightful place in public discourse. In a very readable work of just 161 pages, Pollin covers the history, economics, and politics of the issue, and proposes an entirely persuasive program for getting there. He means his title in both senses—back to a full-employment economy and back to this cornerstone of progressive politics.

The fact that we are so far from full employment today has led many to offer half-measures for job creation, watered down so that they stand some chance of enactment. Pollin’s strategy is to step around the political blockage and describe what a true full employment program might look like. The exercise helps the reader appreciate the impoverishment not just of our labor markets but of our politics.

In a historical section, Pollin demonstrates that full employment is possible in a capitalist economy, but politically difficult. Tight labor markets increase workers’ power, reduce corporate profits, and bring to office politicians likely to constrain laissez-faire capitalism. Thus, corporate elites resist full employment, even though it produces more customers for their products.

Nonetheless, nations such as Sweden after WWII demonstrated that it was possible to combine full employment with rising wages and international competitiveness. Sweden’s average unemployment rate, Pollin notes, was just 2.1 percent in the 1960s through the ’80. In Sweden’s social compact, workers held their wage increases to rates of productivity growth, and government invested in training, retraining, and public employment.

What killed full employment? After the inflationary 1970s, with the ascension of Margaret Thatcher in Britain and Ronald Reagan in the U.S., full employment ceased to be the prime economic policy goal. Rather, government endeavored to make the world safe for laissez-faire capitalism: “[P]olicies focused on maintaining low inflation rather than full employment; reducing the public sector….eliminating or weakening pro-worker labor laws.”

Globalization further increased the leverage of capital over labor. But Pollin is careful not to scapegoat either immigrants or third world workers, or even the impact of trade. He notes that in the late 1990s, the U.S. briefly attained full employment despite large trade deficits. Immigrants, he demonstrates, compete for domestic jobs, but they also add new purchasing power.

Pollin’s proposed program to achieve full employment includes familiar essentials, but ingenious new specifics. It includes more effective controls on finance, industrial policies to promote new green industries, a major new program of public investment, and a shift in the composition of public spending. The labor intensity of green energy, he demonstrates, is far more conducive to job creation than that of, say, Pentagon spending or reliance on a petroleum-based economy. A shift of $330 billion in public outlay to more job-friendly uses could create 4.8 million new jobs without increasing the public deficit.

Pollin also makes a convincing case that banks and corporations are sitting on massive capital reserves that they won’t deploy because the demand just isn’t there. If the idle capital were channeled by government into productive investment, over 19 million jobs would materialize.

As he points out, we already have a substantial set of industrial policies built around the Pentagon, which sociologist Fred Block terms a “hidden developmental state” that provides both massive R&D contracts as well as long-term demand. Because Pentagon contracting is so opaque and narrow, industrial policies in commercial realms could be far more efficient. Pollin has in mind a renewable energy sector, a smart electricity grid, new forms of efficient transportation, and retrofitting of commercial buildings. He writes:

As a technical matter, the federal government has the capacity today to dramatically expand the markets for clean public transportation and renewable energy systems, just as the Pentagon spent forty years nurturing the Internet. But we lack the experience and political will to advance this agenda outside of the defense establishment. The challenge then is to figure out ways to strengthen such capacities as quickly as possible.

His riposte to the deficit hawks is that if we get back to full employment, much of the deficit will take care of itself. Citing research by no less than Olivier Blanchard, chief economist of the International Monetary Fund, Pollin calculates that full employment would generate so much economic activity that the annual deficit would decline by $500-600 billion. Further deficit reduction could be achieved by deeper reform of health care and a new financial-transaction tax, as well as cuts in the military.

All of this flies in the face of today’s conventional wisdom, and is far more muscular than policies embraced by most liberals. But wisdom it is, and the book deserves a broad hearing. Today’s economy is so anemic that nothing less than a new commitment to full employment will get us out of the ditch dug by a generation of neo-liberalism. Pollin’s achievement is to demonstrate that the economics work. The politics, as always, are harder.

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