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December 19, 2009
Ambitious Plan for Jobs Creation Is Offered by the Economic Policy Institute
    by Robert Kropp

According to its report, a plan to create at least 4.6 million jobs in the first year could be repaid by the implementation of a financial transactions tax.

With the nationwide unemployment rate entrenched in the double figures, packaging the November jobs report of "only" 11,000 more jobs lost as cause for optimism seems shortsighted at best. Economists believe that only vigorous job growth will help turn the tide of the most significant jobs crisis since the Great Depression.

A recently issued report by the Economic Policy Institute (EPI) describes the effects of long-term high unemployment on the entire economy as having the potential of impeding growth for generations. The report, entitled American Jobs Plan: A Five-Point Plan to Stem the U.S. Jobs Crisis, states unequivocally that "it is likely that unemployment will remain above 8% even two years from now in the absence of bold and decisive action to create jobs."

Even before the net loss of jobs reported in November, the number of unemployed Americans stood at 16 million, with more than another nine million classified as underemployed. Since the current recession began, the US economy has lost eight million jobs; because of population growth, the economy will need to add 10.9 million more jobs in order to return to the pre-recession unemployment rate of 4.9%.

The longer that high unemployment is allowed by policymakers to continue, the more onerous will be the effect it has on the economy. Referring to a report it issued in September, entitled Economic scarring: The long-term impacts of the recession, EPI describes the long-term effects that can be expected as a result of long-term high unemployment.

The social consequences of long-lasting damage to individuals’ economic situations include reductions in educational achievement and lost opportunities due to poverty, both of which have impacts not only for the foreseeable future but for generations to come as well.

For investors and entrepreneurs, whose activities in a positive economic climate often form the backbone of successful job growth, the current recession has imposed such a damper that their role in an economic recovery is undermined at present. According to the EPI report, "Total nonresidential investment is down by 20% from peak levels through the second quarter of 2009. The reduction in investment will lead to reduced production capacity for years to come."

The impact of the recession on new and small businesses has been considerable. In 2008, "43,500 businesses filed for bankruptcy, up from 28,300 businesses in 2007 and more than double the 19,700 filings in 2006." Additionally, only 21 active companies had an initial public offering in 2008, down from an average of 163 for each of the four years preceding the economic crisis.

The report concurs with the findings of most analysts, that the Obama administration’s American Recovery and Reinvestment Act succeeded in slowing the decline of the economy, created as many as 1.5 million jobs by the end of September, and increased the likelihood of eventual economic recovery.

However, the report continues, "Critics argue that the Recovery Act and the rescue of the financial sector have exhausted our ability to pursue further fiscal solutions—government spending and tax cuts—to fight the recession." Citing the arguments of noted economists who have contended that spending thus far has been less than half of what is needed to return the economy to a path of growth, the report states that until more jobs are created, the economy will continue to suffer.

The argument for increased government spending won further support this month from Joseph E. Gagnon of the Peterson Institute for International Economics, who asserts in a report entitled The World Needs Further Monetary Ease, Not an Early Exit, "either monetary or fiscal stimulus would help to attain more satisfactory outcomes for economic activity, employment, and inflation than those envisaged by the main economic forecasts."

Gagnon estimates that to increase the gross domestic product (GDP) by three percent over the next eight quarters, the Federal Reserve would need to purchase an additional $2 trillion in debt securities. As the GDP grows, according to Gagnon’s analysis, unemployment will fall.

The American Jobs Plan called for by the EPI would, it states, create or preserve at least 4.6 million jobs over the next two years. The plan contains five primary components.

The plan calls for the strengthening of the social safety net for unemployed workers and their families through extended unemployment benefits, increased COBRA health coverage, and nutritional assistance. In calling for additional fiscal relief to state and local governments, the report cites studies finding that the $52 billion in such relief thus far provided by the Recovery Act has already resulted in $73 billion in economic growth, and has led to the creation of up to 500,000 jobs.

A third component of the American Jobs Plan is increased investment in the nation’s transportation infrastructure to increase productivity and generate jobs, as well as an investment of $30 billion for the repair and modernization of the nation’s school buildings and facilities.

A fourth component is the allocation of $40 billion toward the creation of public sector jobs according to the Community Development Block Grant (CDBG) program administered by the Department of Housing and Urban Development (HUD). A goal of many block grants has been to attract additional private investment; socially responsible investors can satisfy their community investment mission through such programs.

The final component of the plan calls for a jobs creation tax credit worth 15% of expanded payroll in the first year and 10% in the second, which in the first year alone will lead to the creation of 2.8 million new jobs, according to the EPI.

To fund its ambitious jobs creation plan, the EPI calls for a financial transactions tax (FTT) of 0.5% on the transfer of ownership of a financial asset, which after ten years would cover the entire cost of the EPI’s plan. Because, according to the report, “the mean holdings of financial assets by the wealthiest 10% of households is 45 times greater than the mean holdings of the bottom 75% of households,” the tax would be extremely progressive.

The report concludes with the assertion that the “American Jobs Plan would create at least 4.6 million jobs in the first year alone,” and calls on Congress and the Obama administration to “take bold, decisive action to create jobs.” Whether they have the political courage to do so, or whether, as economist and New York Times columnist Paul Krugman writes, “the urgency of late 2008 and early 2009 has given way to a curious mix of complacency and fatalism,” remains to be seen.


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