A Real Solution to High Unemployment

We are three years into the contraction of the broad money supply (otherwise known as the credit crisis). The disappearance of easy money in the real economy means a persistently high unemployment rate. As of October, the official government unemployment rate remains at a stubborn 9.7%, which of course, as of the 1990's conveniently leaves out several classes of people previously categorized as unemployed. The 9.7% only counts those that the government identifies as actively looking for work. By and large, these are people who really want jobs. The current stop-gap solution for these people is to apply for emergency unemployment compensation from the federal government. Congress keeps pushing back the limit for how long people can qualify for emergency unemployment, and rightly so, because there simply aren't enough jobs out there for all the people that have bills to pay and families to support. People by and large don't have savings anymore (which is really a mathematical consequence of capital accumulation in a debt-based monetary system) and you can't just let 30 million people and their families starve to death. Democrats thus insist on extension of unemployment assistance, while republicans rail against the disincentive to work engendered by free money. Isn't there a better solution then? Yes. A version of the solution I have in mind was enacted under Franklin Roosevelt's administration. It was headed by three temporary organizations, the Work Porgram Administration, the Tennessee Valley Authority and the Civilian Conservation Corps. Unlike the idiotic 'stimulus' of the Obama era, which paid people in zombie job sectors to do work that didn't need to be done (i.e. paving over perfectly good roads) the WPA and CCC paid unemployed people a basic wage to perform vital infrastructure, energy, and conservation work - work that continues to provide value to the economy on a continuing basis to this day (think hydroelectric dams, irrigation systems, and the like).

These kinds of programs are derided by steadfast republicans, who view them as socialist - and who insist that private enterprise and free markets are best at allocating labor and resources. In most cases they are right, but in some critical cases, this notion is very wrong. To illustrate my point, think of traffic. Most major cities have some public transportation like buses and subways that are rather expensive and inconvenient, so most people end up driving to work. These cities tend to have many traffic arteries that are chronically clogged with cars. Traffic is funny. There is very little difference in commute time between a road network with very low traffic volumes and one with moderate traffic volumes. But something happens when traffic volumes increase above a critical threshold...traffic snarls to a standstill very quickly with the addition of each new car into the system. So here you have essentially a free-market system, where each participant can choose his/her method of getting to work based on transparent prices for fuel vs. commuting, and yet on the aggregate, a very suboptimal solution is achieved. Here in Portland, public transportation is heavily subsidized. It costs $4.75 to ride all the buses, light rail, and subway you want all day. Annual passes can be had for a pittance. There are stops at almost every block all over the city, and it is very fast and efficient to use. The result is that a huge number of people utilize this system, and those that do choose to commute via car benefit from the additional time afforded to them by the relatively free-flowing roads. This additional time on the aggregate has enormous value that more than makes up for the cost of the subsidy.

Beyond this example, a whole class of economics is devoted to the situations that can be classified as a 'tragedy of the commons' wherein the rational decisions by each actor in the system (decisions made in order to maximize their own well being) leads to degradation and collapse of shared resources. In these situations, a government-regulated economic management of the shared resources maximizes the system's long term prosperity. Last year's nobel prize in economics was given to Elinor Ostram who concluded that 'tragedies of the commons' are best solved by local management solutions (i.e. local government institutions), presumably because they have the best understanding of the nuances of the problem, have the most direct stake in its solution, and are best positioned to minimize administrative costs. The point I am making here is that the WPA/TVA/CCC, although perhaps not optimal economic arrangements were brilliant solutions to high unemployment because they focused the energy of people desperate for work into constructive avenues that helped to manage resources and alleviate tragedies of the commons - roles that government economic entities are uniquely suited to do.

So what would a modern day WPA look like? Well, it could take many forms, but let me lay out what's going through my mind:

1. With certain exceptions for people with disabilities, etc, direct unemployment compensation is completely eliminated. If people want money, they have to find work.

2. A website is started by the federal government, with home pages directed by state or local governments. The purpose of the webpage is to connect people with temporary work that needs to be done with people nearby who are willing to do it. The labor for this work is heavily subsidized by the government. There are certain catches however:

3. The work location must be within a few miles of the worker's residence. Part of the reason we have high unemployment is that the broad economy is constrained by oil supplies, and market forces kicking people out of jobs is a very effective way to create demand destruction in the oil markets. This new batch of labor cannot put a strain on demand for oil.

4. The work must be certified in some way as accomplishing goals in several key focus areas such as A) Creating sustained future sources of income or value. This might include building a vegetable garden, building rainwater cisterns, energy supply projects, etc. B) Putting in place infrastructure that reduces demand for energy, especially oil. This might include weatherproofing old houses, building clothes lines, simple passive solar projects, making bike trails, helping with bike repair, etc. C) reducing pollution, waste or providing ecosystem services. This might include pulling weeds at a local farm to eliminate the need for chemical herbicides, or planting flowers that attract the good insects that eat the insect pests to eliminate the need for chemical pesticides. It might include building trails, benches, etc out of recycled materials. D) Urban renewal/making urban spaces more livable. This might include painting murals over graffiti'ed walls or building a city park where an abondoned parking lot now stands.

5. Each project must be either started by a local government agency, in which case it is fully subsidized, by a private individual or non-profit group, in which it is half-subsidized, or by an existing business, in which case it is 1/4 subsidized.

What this does is organically puts people back to work and helps to retrain a workforce to do real, constructive things for the economy. It retrains the workforce to use human labor rather than oil as a substitute for labor, which reduces oil consumption, lowers the cost of that oil for the rest of the economy in the process, and thereby enables further renewal of traditional private-sector jobs as overhead is reduced.

To some extent, the cheap, subsidized labor will steal work from private businesses, but this is an unavoidable cost, and should be far-outweighed by the benefits. These are designed to be temporary jobs for the unemployed workers, so their pay is low, say $10/hour, and they should therefore have every incentive to seek out better-paying work in the broader private sector. There will also be administrative costs in setting up such a system, but if the allocation and certification of labor is done on a small, local governmental level, it should minimize these costs.

Keep in mind, we are currently paying all of these unemployed people to sit on their hands. Why not pay them instead to rebuild our dying country?

Nick