Great summary of the current political gridlock by Dean Baker and Jared Bernstein:
There are many policies that can reduce inequality, but there is none as straightforward conceptually and as difficult politically as full employment. The basic point is simple: at low rates of unemployment, the demand for labor allows workers at the middle and bottom of the wage distribution to achieve gains in hourly wages, annual hours of work, and thus income.
Levels of unemployment are not the gift or curse of the gods; they are the result of conscious economic policy. The decision to tolerate high rates of unemployment is a choice. It is one that has enormous implications not just for the millions of people who are needlessly unemployed or underemployed but also for tens of millions of workers in the bottom half of the wage distribution whose bargaining power is undermined by high unemployment.
It is pretty obvious that low unemployment would enhance wage growth amongst middle- and low-income workers. But the policies to create low unemployment are not as clear:
- Raising inflation to lower real interest rates would not get strong support in many quarters. It would seem that you are manipulating market signals to dupe business investors to act in a fashion that may not be in their long-term best interest.
- Infrastructure spending is the key to a sound recovery, but beware of raising public debt to fund anything other than productive assets that can generate a market-related return (to service the debt).
- The trade deficit is a big part of any solution. We need to penalize currency manipulators like China (Japan before them) for buying US Treasurys to suppress their exchange rate and undermine US manufacturers.
- Job sharing is not a long-term solution, but it does enable unemployed workers to retain skills that would otherwise be lost.
Overall, an excellent summary of what needs to be done. But it omits one vital piece of the puzzle. How do we get politicians and interest groups to act in the best interest of the country rather than their own?
Read more at Full Employment and the Path to Shared Prosperity | Dissent Magazine.
“How do we get politicians and interest groups to act in the best interest of the country rather than their own?”
This puzzle is something we’ve grappled with in a prior blog, and I’m still not much closer to solving it. It is tempting to say we must already know the answer at a micro level, because a football coach (for example) can convince individual players, who might otherwise chose to be self-interested champions, to play in the best interest of the team rather than themselves. A coach can do this by convincing each player that the long term benefit of the team winning the game is greater than the short term benefit of any particular individual feeling like a champion. We often see this in action at football matches where a player will sacrifice his attempt at a long-shot, champion-making goal by passing it to a team player closer to the goal.
Whether this approach could work at politician level is unclear to me. Candidates come closest to ‘team motivation’ while campaigning, and usually the ones that do it best get elected. But I can’t recall a single politician in power trying to rally the whole nation to achieve a common goal. This is where the sport analogy breaks down. Footy players who join footy teams already have a grand vision (winning the Grand Final), whereas the average man in the street has no idea what Australia’s grand vision is. Nor is there a mechanism for creating and agreeing one by rational debate. Deliberate polarization into party politics ensures there never can be a unified vision. We still see the other political party (or other socio-economic class) as being the other team we’re playing against; instead of the other country we should be competing with.
I recently re-visited an old (1970s) documentary series called the Ascent of Man, by Jacob Bronowsky. Highly recommended. It is his personal view on how mankind ascended to civilization over the past 4 million years or so. In one segment, illustrating why nomads can never establish civilizations, he describes the ancient aboriginal peoples as food grabbers. If he were alive today, I’m sure he would describe us money-grabbers, and therefore unable to take the next leap in civilization, whatever that may be.
“Deliberate polarization into party politics ensures there never can be a unified vision. We still see the other political party (or other socio-economic class) as being the other team we’re playing against; instead of the other country we should be competing with.”
I agree. This is the Achilles heel of the present system, where the disruptive forces outweigh the unifying forces. There is no common vision or common goal. There will always be disagreement about the methods used, but the debate should be framed within an agreed goal:
…if we could reduce that to a single measure, that would be a good start.