Jobs and the “Fiscal Cliff”

My relief that Mitt Romney was not going to be our president, with a Republican Senate along with the House of Representatives, barely lasted through Tuesday night.  By my lights, a lot of terrible stuff and a completely wrong direction in our policy and politics have just been avoided.  Whew!  But after months of both Republicans and Democrats talking about the lack of jobs being produced by our lackluster economy, with political reporters, operatives, and pundits hanging on the next unemployment report as if it might be vitally important for the future of the republic — by the end of the week our 8% official unemployment rate (and Romney’s oft-repeated “23 million unemployed and underemployed workers”) was again just one of those inconvenient realities that we’re going to have to live with.

President Obama’s victory speech Tuesday night looked ahead to his second term and promised to focus on “reducing our deficit” along with some other things (“reforming our tax code, fixing our immigration system, freeing ourselves from foreign oil”), with no mention of getting our economy growing at a rate that can reduce our debilitating unemployment and the damage it is doing to all of our lives, some of us much more than others.  Then, as the Wall Street Journal headlined two days later, “Political Focus Shifts to ‘Fiscal Cliff’,” and it’s all about budgets and the need for “shared sacrifice” and a “balanced approach” to easing the economy farther downhill rather than going off a cliff.

The fiscal cliff is not just about deficits.  It’s about jobs – jobs in an economy where there are not nearly enough of them for everybody who wants and needs them.  If the spending cuts and tax increases currently scheduled to take effect January 1st actually would take effect and then remain in place for all of 2013, it would reduce the federal deficit, at least at first, by more than $600 billion – that is, “cutting the deficit in half,” as the President once promised.  But it would also throw us back into recession and eliminate more than 4 million jobs.

Jobs and deficits are related.  Federal budget deficits (spending more than you take in in taxes) fuel economic growth and create jobs.  Likewise, stronger, faster economic growth creates jobs and, thereby, reduces federal budget deficits.  Without the annual $1 trillion deficits the federal government has been running since President Obama took office, we would still be in the Great Recession – or worse.  Right now, we need those deficits.  Cut them substantially, and you reduce economic growth and kill jobs.

Even though some Republicans deny it and almost no Democrats will say it, all the political players, including what is euphemistically called “the business community,” know these basic principles of macroeconomics.  They know that rapidly cutting the deficit in half – whether by cutting spending, increasing taxes, or some combination of the two in a so-called “balanced approach” – will send the economy back into its 2008-09 tailspin.  That’s why all the political players fear the fiscal cliff, and that widespread fear is also why we will not go over it.

But how we avoid the fiscal cliff matters.  And just avoiding it will at best leave us where we are, with a stagnant economy growing at 2% a year and with an official unemployment rate near 7% as far as the eye can see.  We also need to stimulate the economy immediately, get it growing fast enough so that it is creating 300,000 or 400,000 jobs a month (versus the recent trend of 150,000 a month).  This will increase the deficit in 2013, but it will also do more to cut the deficit in the long run than any spending cut or tax increase could do.

For a guide on how to avoid the fiscal cliff, see the Economic Policy Institute’s September policy brief, “A fiscal obstacle course, not a cliff” by Josh Bivens and Andrew Fieldhouse.  It’s very wonky and can be hard to follow in spots, but it’s only 13 pages of text.  And it has a wonderful table on page 7 that lists the various laws that expire at the end of this year and shows both how much each expiration will reduce the deficit AND how many jobs it will kill.  The fiscal cliff is not just the Bush tax cuts – which will lop $64 billion off the 2013 deficit if only the high-income cuts expire, but will also cut 102,000 jobs.  The cliff also includes Obama’s special recession-fighting unemployment compensation program (whose expiration will reduce the deficit by only $39 billion but will eliminate 448,000 jobs) and the expiration of the payroll tax cut (which will reduce the deficit by $115 billion but at the cost of killing more than one million jobs).

Bivens and Fieldhouse use these calculations to show how a jobs-sensitive strict cost-benefit analysis would lead to renewing (and even enhancing) federal government spending programs rather than renewing any of the tax cuts, while also showing that tax cuts targeted to lower- and middle-income workers create more jobs than those going to the wealthy and other high-income earners.  Tax increases do kill jobs, just as Republicans always say, but cuts in government social spending kill many, many more.

There is a lot of complicated economics here, and the politics of avoiding the fiscal cliff may be even more complicated.  I sympathize with the President and Congressional Democrats for having to work through these daunting problems while dealing with House Republicans.  But the President started on the wrong foot Tuesday night by focusing on “reducing our deficit.”  That’s a job killer if you do it now and if you do it the wrong way.  With an economy growing at 2% (at best) and an unemployment rate hovering around 8%, the very last thing we need now is to reduce our deficit.  Rather, first we need to preserve our deficit and the jobs it is supporting.  And then we need the President’s American Jobs Act with its increased spending for infrastructure and for state and local governments to hire and rehire “teachers, cops, and firefighters” – namely, the stuff he campaigned on, the promise of “Forward.” Reducing our deficit and a long-term plan for managing our accumulating national debt are for later, not now.  Right now we need jobs, millions of them.  And we need our newly elected President paying attention to that in a way he has not since February of 2009.

Jack Metzgar

Chicago Working-Class Studies

How to Build a Strong Economy: Education or Unions?

On May 15, The Chronicle of Higher Education reported that

The American higher-education system has long been seen as a leader in the world, but confidence in its future and its enduring value may be beginning to crack along economic lines, according to two major surveys of the American public and college presidents conducted this spring.

The surveys, conducted by The Pew Research Center and The Chronicle, reveal few surprises to those of us who have been paying attention to the latest crisis of higher education, but several points underscore the different views of the purpose of higher education among education professionals and between those with degrees and those who have not gone to college . For example, of the 1,055 presidents of colleges and universities across a broad spectrum, including four-year, two-year, public, private, and for-profit institutions, respondents are split roughly in half on whether colleges should be about work force preparation or “intellectual growth,” and the responses fall along a predictable axis, with four-year institutions arguing for the latter, and two-year and for-profits advocating the former.

Equally interesting is the difference between college graduates and those who have not (or have not yet) attended college in their responses to the same question on the mission of higher education. According to Pew, those who attended college more often believe that the mission of college is intellectual growth, while those who have not feel it should be work-force preparation. As significant are the responses, across all educational levels, to the question of what a young person needs to succeed in the world: a college education comes in third, behind a “strong work ethic” and the ability to get along with people..

The Chronicle survey addresses President Obama’s statement in last year’s State of the Union address of a national goal that the U.S would lead the world in degree attainment by 2020, so that we can lead the global workplace. The assumption that America will regain its competitive edge simply by awarding more college  degrees seems naïve, , particularly when the same respondents to the Chronicle survey report overall “lower quality” of preparation on the part of incoming students. Indeed, few of the college presidents surveyed think the goal is attainable: only three percent believe it is “likely” that the U.S. will achieve this benchmark, while 50 percent say it’s not likely.

Compounding the problem is that, even if this goal were achieved, a college degree is not a guarantee of gainful employment, though university marketers often suggest it is. Just last week, Catherine Rampell of the New York Times cited a study by Andrew Sum of Northeastern University that shows that only 55.6 percent of 2009 college graduates are working in jobs that require a college degree, while the other 44.4 percent are almost evenly split between working in jobs that require no degree and not working at all.  In the current economy, and as Sherry Linkon and Jack Metzgar have suggested in their analyses of predictions about job growth in the service sector, in the long run, college degrees are clearly not the answer for everyone.

Indeed, in his response to Obama’s aspiration, Brookings Institute fellow Grover J. ‘Russ” Whitehurst noted:

Germany has a stronger economy than France but half the percentage of young adults with a college degree.  Further, France has increased its percentage of young adults with college degrees by 13 percentage points in the last 10 years whereas Germany’s output of college graduates has hardly budged, yet the economic growth rate of Germany has exceeded that of France over this same period.  Obviously increasing educational attainment is not a magic bullet for economic growth.  Education credentials operate within boundaries and possibilities that are set by other characteristics of national economies.  We must attend to these if more education is to translate into more jobs.

And what are those “other characteristics” that might generate a stronger national economy? The answer is ironic, especially as governors in Ohio and Wisconsin are pushing anti-union bills through state legislatures. According to several studies, one of the conditions of strong economies like Germany’s is not increased degree attainment but strong unions and worker protections.

Marc McDonald suggests that when looking at two of the world’s nations with the lowest jobless rates, Germany and Japan, what emerges is a common factor of heavily unionized workforces:

Take a look at two of the most heavily unionized nations in the world: Germany and Japan. Both nations are thriving and have jobless rates far below the U.S. rate. Both nations still have large manufacturing sectors, which are heavily unionized. And both nations are exporting more than ever—even to low-wage nations like China. (Japan, for example, is one of the few nations on earth that has enjoyed a trade surplus with China much of the time in recent years)… Not only are Germany and Japan heavily unionized, both nations have strong pro-worker laws that back up their labor movements. In both nations, for example, it’s virtually impossible to fire full-time workers. Mass layoffs are very rare in both nations.

While many would balk at the suggestion that the U.S. emulate Japan, with its notorious reputation as a stressed out, all-work economy, McDonald notes that, on average, Japanese workers work fewer hours than their American counterparts and enjoy greater benefits. McDonald argues that because workers are protected within these economies, the companies that employ them must think beyond the immediate and develop long-term strategies, rather than short-sighted policies that focus solely on short-term growth and quick shareholder gains.

McDonald may be on to something in his suggestion that as corporations —  and increasingly universities — clamor for the “flexibility” that non-union and non-tenure workplaces promise, they may be embracing a short-sighted strategy. Writing in Harpers last year, Thomas Geoghegan, urges Americans to “Consider the Germans,” and in so doing he counters the claim that what American employers need is greater flexibility and fewer fetters that come with worker representation. In considering the ways that Germany continues to thrive in high-market manufacturing he notes:

All my life as a labor lawyer I have read the same thing in The Economist, about the United States and its wonderful labor-market flexibility. What they mean is: Unlike the Germans, U.S. working people are completely powerless. But it’s precisely because of our labor-market flexibility that we can’t compete. Our workers have been flexed right out of their high-wage, high-skill jobs and into low-wage, low-skill jobs. That’s bad for the workers, of course, and it’s also bad for the economy. The German model—with worker control built into the very structure of the firm—keeps bosses and workers in groups, rubbing elbows with each other, and sometimes just elbowing. It creates a group interaction that over time builds and protects what economists like to call human capital, especially in engineering and quality control. It’s precisely this kind of valuable capital that our atomizing “flexible” labor markets are so good at breaking up and dispersing.

Both McDonald and Geoghegan share the belief that while America obsesses (with good reason) over China, that the model to emulate is that of Germany, with its strong secondary education system and clear worker rights’ laws.

What’s the connection between the value of a college degree and the economic impact of unions?  Just this: if our goal as a nation is economic growth, then we might do better to focus on the rights and status of workers rather than on getting more people to go to college.

Tim Francisco, Center for Working-Class Studies

Youngstown’s Future and the “Tech Belt Megapolitan”

Youngstown 2010, the city’s award winning community plan, is structured around four principles that have provided the framework for all of the work that has followed:

  • Accepting that Youngstown is a smaller city
  • Defining Youngstown’s role in the new regional economy
  • Improving the area’s image and enhancing quality of life
  • A call to action.

Most of the favorable attention Youngstown has received for 2010 has resulted from the first principle-focusing on being a smaller sustainable mid-sized city rather than continuing to mourn the past. Less attention has been devoted to the second principle-defining Youngstown’s role in the new regional economy.

Both physically and mentally Youngstown is located at the center of a bi-state region. Despite this fact, Youngstown has long defined itself as being at the edge of two urban centers-Cleveland and Pittsburgh. This perception is beginning to change because our nation and region are changing. As the community understands these new realities, we will be better able to identify new economic opportunities for Youngstown and the Mahoning Valley.

To thrive in this changing world, we must take a long view-looking 30 years ahead to new economic patterns rather than looking back to the industrial world of more than 30 years ago.

Between now and 2040 our nation will absorb another 100 million people. Only India, with a population of 1.1 billion, will add population more quickly than the United States. According to Arthur Nelson and Robert Lang of Virginia Tech’s Metropolitan Institute, the majority of this population growth will be accommodated within just 20 “megapolitan areas.”

Megapolitans are, in essence, the Combined Statistical Areas of the 21st Century. Like CSAs, megapolitans are defined by empirical evidence of overlapping commuting patterns. The country’s 20 megapolitan regions are already home to about 60% of Americans and account for nearly 70% of our Gross National Product. Nelson and Lang project that this economic dominance will only intensify by 2040.

Northeast Ohio and Western Pennsylvania together constitute one of the 20 megapolitans. Nelson and Lang call it the “Steel Corridor,” a name which evokes the region’s proud past but unfortunately does not point to a promising future. Congressman Tim Ryan and his colleague in Western Pennsylvania, Jason Altmire of Aliquippa, have coined a more future-oriented name, the “Tech Belt.”

The Steel Corridor/Tech Belt is home to 7.1 million people. It is larger that Ohio’s other megapolitan, the “Ohio Valley,” anchored by Columbus and Cincinnati (5.3 million) and is the same scale as the “Carolina Piedmont,” anchored by Charlotte and Raleigh (7.0 million), the “Georgia Piedmont,” surrounding Atlanta (6.9 million), the “Florida Corridor” linking Tampa and Orlando (7.8 million), and the “Greater Metroplex” of Dallas-Ft. Worth and Oklahoma City (7.9 million)

Despite its impressive scale, the Steel Corridor/Tech Belt is projected to remain the nation’s slowest growing megapolitan and the least likely to benefit from the nation’s projected population growth.

These projections give rise to several important questions: How can the region compete for its share of the nation’s growth in population and wealth? How can its communities compete against others in the faster growing megapolitans as places to live, work and invest? What role should city governments and universities play in advancing our understanding of the threats and opportunities that lie ahead?

Many across the region are beginning to ask these questions.  On October 1, 2007, Representatives Ryan and Altmire co-convened the first “Tech Belt Summit,” bringing to Youngstown State University 100 business, educational, and philanthropic leaders to discuss organizing a Tech Belt initiative to leverage the strengths of the entire region.  Ryan urged the participants to think of the Tech Belt not as a collection of aging steel centers but as an “economic unit able to compete with Shanghai and Mumbai.”

This summer the regional dialogue continued when Youngstown State University hosted the first “Cleveland+Pittsburgh+Youngstown Regional Learning Network,” a collaboration of community organizers, public officials, and philanthropies dedicated to making the region’s communities attractive, equitable, and sustainable.

The Learning Network has invited Ryan and Altmire to discuss their Tech Belt initiative at its second summit-a day-long session at the Youngstown Club on November 7,, 2008. I would urge area residents concerned with the future of our region to join the Network and attend this session.

Everyone else should keep an eye on the “Steel Corridor.”  Youngstown’s experience of deindustrialization predicted what would happen around country in the 1970s and 80s; our “Tech Belt” future may well do the same for 2040.

Hunter Morrison