Five Policies To Boost US GDP Growth And Create Jobs

Analysis

 @JosephLazzaro on January 24 2014 12:04 PM
  • Manufacturing Cessna 2013
    Some argue that the U.S. economy can't grow at better than 5% per year: nothing could be further from the truth. With the correct public policies, the economy can soar. Reuters
  • NY Midtown iStock photo
    Midtown Manhattan. iStock photo.
1 of 2

It doesn’t take a Harvard economist to figure out that the U.S. economy – five years into a recovery – still isn’t growing fast enough.  

The economy is short 7.9 million full-time jobs: That’s the total needed to return the U.S. economy to prerecession health.

To give job seekers and investors another idea regarding how long it would take to make up for the job gap, if the economy adds 200,000 jobs per month -- about its current pace -- the nation would not return to prerecession labor market conditions for another five years.

That’s far too long. Fortunately, the nation does not have to resign itself to subpar GDP growth and job growth. There are public policy actions the nation can take “to get this economy moving again,” to cite former President John F. Kennedy. And here are five actions -- ranked from least critical to most critical:

Free, Public College Education: $70 billion

The United States is spending about $800 billion on defense annually, including at least $70 billion for the Afghanistan War/war on terror. If it spent $70 billion to give each college-bound student in the U.S. a free college education at a public college/university, it would provide long-term stimulus to the economy.

The reason? A whole new segment of the future workforce would add new skills and obtain the training necessary for the U.S. economy of the globalization era. The grant would also pay for a free public community college education. In addition, older Americans who lost their job and need to retrain would also receive a partial tuition credit.

A free public college education would also point those talented high school students in the direction they need to go -- to college – instead of possibly rejecting college because they’re concerned about excessive student loan debt. It would also prevent the immediate addition of these students to the workforce at a time when the there aren’t enough jobs to accommodate them.

And consider this: For those who think a free, public college education is not the best investment - one reason the United States rocketed past other developed nations during the early part of the industrial revolution was that it was the first industrialized nation to offer a free, Kindergarten-Grade 12 public education. The knowledge/skills accumulation was enormous, and it led to great things, economically, for the nation. So would a free, public college education.

Parental Compensation /Leave: $150-200 billion

Gloria Steinem, among other feminists, was correct: There is a lot of work that women do in society that isn’t compensated.

To correct that, Congress should establish a parental compensation/ leave fund. It would pay a parent $1,000 per month – or the tax credit equivalent – for seven years, which does not have to be consecutive. Either parent may claim the credit, and the years taken can be any year from age 21 to 60. Many other industrial democracies compensate adults for parenting – it’s time the United States did so, as well.

Parental compensation would have the added benefit of removing adults from the workforce who would rather be stay-at-home parents but are currently forced economically to work outside the home. By extension, this would, once again, free up jobs for other Americans -- a double win for the economy.

Against the idea of parent compensation? Child rearing and homemaking are important, valued parts of a healthy, productive, just society: It’s time the nation -- through public policy – recognized it. And compensating parents will provide a modest U.S. GDP boost – particularly among those parents who are not in the workforce, and who did not plan to enter it in the near future.

The Superpension: $400 billion

Social Security – arguably the greatest, most constructive economic reform in U.S. history -- lifts tens of millions of senior citizens out of poverty annually. But, as everyone knows, it’s only a partial pension. That fact, combined with both the decline of defined benefit pensions in the private sector, means that the U.S. Congress should supplement the current, inadequate defined contribution pension system with a Superpension.

This redistributive, income-supporting pension would be funded by raising the FICA tax to 8 percent for employees, and 8 percent for employers, on incomes under $50,000 per year; 9 percent /9 percent on incomes above $50,000 per year.

The Superpension’s payout would be progressive – so that it would add up to $800 per month for low-income Americans (those with incomes under $30,000), with a sliding-scale benefit that declines to $100 for those with incomes above $100,000.

And the Superpension’s goal is obvious enough: boost later-life incomes of those Americans who need it most. And it requires those Americans who have been the most fortunate to help the less-fortunate.

One major benefit of the Superpension would be its ability to increase U.S. GDP growth: Low-income groups are much more likely to put that additional $800 or $600 per month to pay for essentials -- the mortgage, rent, food, utilities, prescriptions, car repair etc. -- than upper-income groups. That would increase what economists call aggregate demand, and anything that increases demand increases GDP growth, which will increase U.S. corporate profits, sales, jobs and likely boost wages. Another benefit (and no less important): It would lift even more Americans out of poverty.

Raise Minimum Wage To $10 Per Hour By 2015

Simply, the big plusses of the U.S. economic system -- corporate capitalism -- are profits and jobs. Take one away, and the U.S. system experiences stress. Take both away and the U.S. system enters a crisis. Historically, capitalism -- particularly corporate capitalism since the industrial revolution -- experiences a crisis every 40 to 55 years. The financial crisis that struck in 2008 and the U.S. economy’s slow, below-trend recovery from it, with its high unemployment level, is one. There’s no way to sugarcoat it: The U.S. economic system is experiencing a crisis – and unless job growth and median incomes increase, the crisis will continue.

The root of the problem? Not enough of the excess profits from labor are returning to labor and way too much is accruing to capital. Simply, unless there is a more equitable distribution of the excess profits from labor, the U.S. economic system will continue to veer in this crisis.

Further, U.S. employee productive gains alone -- and minimum-wage employee productivity has increased roughly on par with the rest of the workforce – justify the $10 per hour minimum wage.

Evidence to support the above: U.S. productivity averaged about 2.7 percent during the 1948-1970 period, then slumped to 1.6 percent in 1971-1995 period, according to U.S. Bureau of Labor Statistics data. However, starting in 1995 the technology revolution driven by the personal computer, microprocessor and the Internet, among other breakthroughs, propelled a large increase in productivity to about 2.5 percent per year. The remarkable productivity rate helped create the record earnings and rising real, median incomes that characterized the “Roaring '90s.” Productivity gains continued at roughly the same pace in the 2000-09 decade and continue to this day.

What’s more, for the 1979-2009 period, U.S. productivity per worker surged a massive 80 percent, but hourly wages rose only 10.1 percent, according to research compiled by the Economic Policy Institute, a liberal, Washington, D.C.-based think tank. And the minimum wage category? Today’s roughly $8-per-hour minimum wage is worth less, in real terms, than what these employees were paid in 1970!  

In other words, while productivity surged, minimum-wage employees were left out of that equation: They did not share in that bounty.

The good news? There is a way to correct the problem – to achieve more-balanced, sustainable GDP growth. One tonic is a higher minimum wage to at least $10 per hour by 2015. Don’t believe the naysayers (usually supply side economists who believe tax cuts on upper-income groups lead to balanced budgets and the solution to every social problem is a tax cut for the uber-rich) -- raising the minimum wage will not decrease jobs; rather, it will increase job gowth, rising profits and larger U.S. GDP growth. How? Once again, for the reasons stated above: by increasing demand and by putting money in the hands of people likely to spend it quickly on essentials.

$700 Billion Fiscal Stimulus - Infrastructure, Education, Research 

Finally, the best way to boost U.S. GDP growth would be a classic one: by public goods investment in infrastructure, education, research and health care.

Simply, the United States’ infrastructure is substandard. Thousands of bridges need to repaired, thousands of miles of highways/roads must be repaved (or reconstructed), the electric grid is grossly inadequate and must be made "smart," and most grade/secondary schools and many hospitals need to be modernized.

A comprehensive public goods investment program by Congress - $400 billion for infrastructure, $150 for education and $150 billion for hospitals/health care/research – would create hundreds or thousands of new jobs, substantially increasing GDP growth and give the most complex and sophisticated economy the infrastructure and support systems it needs to perform at maximum output in the 21st century.

The Great Society

A free, public college education for every American student that qualifies. Parental compensation. A Superpension that would lift even more senior citizens out of poverty. A $10 per hour minimum wage. A postmodern New Deal infrastructure investment program.

All of the above are populist, progressive, egalitarian programs.

Just one of the above programs would increase both job growth and GDP growth. Combine two or three, and the U.S. economy would grow above trend – i.e. faster than 4 percent per year.

Of course, the Republicans in Congress, led by the tea party faction, are opposed to many, if not all, of the above programs, so it’s unlikely that any will be passed by the current Congress. That’s unfortunate because, unless some other growth engine or creator of demand appears, the U.S. economy could continue to grow at a sluggish rate - roughly 2 perent to 3 percent – a rate barely strong enough to keep up with population growth, let alone quickly reduce unemployment.

To be sure, some Democrats in Congress would oppose some of the aforementioned programs, as well, but know that the key impediment to investment in public goods is on the GOP side.

And that sends a strong signal to job seekers, business executives and investors alike about the importance of elections.

 

Join the Discussion