Rural Fervor.

The Federal Reserve's Bad Policy (And A Proposed Solution to Unemployment)

How long will it take for our political leaders to realize that adding monetary base to the system (more bank reserves) does very little to stimulate the economy? Whether or not we sustain a “double dip”—a return to recession in the definitional sense of two quarters of negative growth—it will still feel like that to millions of Americans due to the lack of job growth. This can only be achieved today via sustained fiscal policy action, whether via tax cuts or direct government spending. Deficit reduction per se should not be an objective of policy today, because as growth re-emerges, unemployment will come down, and the deficits we presently face will necessarily shrink.

What, then, should the government be doing today, given Bernanke’s concession of the limits of monetary policy? To start, the government could initiate a Job Guarantee program, using a “buffer stock” principle more common to factory inventories: The public sector could offer fixed-wage jobs for up to 35 hours per week to anyone willing and able to work, thereby establishing and maintaining a buffer stock of employed workers, which expands when private-sector activity declines, and then reverses as private hiring returns.

The program would allow for the elimination of many existing government Welfare payments for anyone not specifically targeted for exemption, and would command greater political legitimacy, as society places a high value on work as the means through which individuals earn a livelihood. Minimum-wage legislation would no longer be needed as it would be established via this Job Guarantee program. Labor would welcome the safety net of a guaranteed job, and business would recognize the benefit of a pool of “shovel-ready” labor it could draw from as needed, as some spread to the government wage paid to these employees.

Additionally, the guaranteed public-service job would be a counter-cyclical influence, automatically increasing government employment and spending as jobs were lost in the private sector, and decreasing government jobs and spending as the private sector expanded. It would therefore remain a permanent feature of our economy, in effect acting as a buffer stock to put a floor under unemployment, whilst maintaining price stability whereby government offers a fixed wage which does not “outbid” the private sector, but simply creates a stabilizing floor and thereby prevents deflation.

In terms of jobs, policymakers must also assist the states via revenue sharing on a per capita basis with no strings attached. This will help the states to fund operations, keep workers employed, provide necessary services and fund infrastructure projects. This “radical” proposal was introduced by that noted progressive, Richard Nixon, in 1972, so the Obama administration would not be breaking new ground here.

Marshall Auerback for The Daily Beast