Economics with a Human Face: The Obstacles to Growth with Full Employment Are Political, Not Economic
Pollin, Robert, The Nation
Bob Dole can't possibly deliver on his promise to restore economic prosperity to the halcyon levels of the sixties through Reaganesque tax cuts. Like Reagan's program, his would engender more income inequality and destabilizing financial speculation as well as further erode the capacity of government to promote well-being in an era of globalized free markets. Still, Dole's plan does put the issue of economic growth back in the spotlight, and thus seems almost visionary compared with the narrow budget-balancing obsessions of Congress and the Wall Street Federal Reserve fixation on the inflationary effects of even slight advances in wages and job growth. Progressives should seize this opportunity to put forth their own blueprints for the kind of growth that will lift millions of workers out of the slough of wage and job stagnation.
The Clinton Administration has no such blueprint. While it boasts that real wages have risen sharply for the past few months and unemployment has fallen to 5.1 percent, it has no intention of promoting further advances by workers to the point where Wall Street bond traders might rebel. Meanwhile, average real wages for nonsupervisory workers are still nearly 13 percent below 1973 levels. Moreover, as much as one-third of the present work force is unemployed, underemployed or living day-to-day in "contingent" work arrangements, with no stability, protection or secure benefits.
Dole is correct in saying that a higher economic growth rate is needed to reverse these distressing trends for working people. Yet the crucial question is not growth per se but what parts of the economy should be expanding and who should benefit from such expansion. To avoid a reprise of Reaganomics, growth policies need to be targeted to achieve real full employment at rising wages. The reigning Washington/ Wall Street consensus that deficit reduction and zero inflation are desirable does raise formidable political obstacles to implementing full-employment growth policies. But the first step toward overcoming the political problems is to understand that there are no insuperable economic barriers to prevent such a program from succeeding.
Despite its bad press with the Republican right, the sixties have much to teach us about economic growth. The last time the economy actually operated under an approximation of true full-employment conditions was between 1965 and 1969, when the unemployment rate averaged 3.8 percent of the work force--down from 5.7 percent during the first half of the decade. Such a decrease today would mean that 2.5 million people--approximately the entire combined population of Boston, Cleveland, Denver and San Francisco--had found new jobs.
There is little' mystery about why unemployment fell in the second half of the decade. The first factor was a deliberate initiative to stimulate the economy with a tax cut. To a considerable degree, this effort was designed to counteract the achievements of the Soviet Union, whose growth rate in the fifties was more than double that of the United States. President Kennedy first proposed a program to cut taxes sharply without reducing government spending, and in 1964 President Johnson got it through Congress. The decline in tax revenues increased the deficit, but the extra after-tax income that households enjoyed encouraged them to spend more. This extra consumption created more jobs.
On the heels of this deliberate expansion came the Johnson Administration's dramatic escalation of spending on the Vietnam War. Defense outlays jumped by $11 billion over a nine-month period beginning in April 1965, an almost 10 percent increase in all federal spending. The Vietnam War was a brutal imperialist adventure, but in terms of its impact on the domestic economy, it stimulated economic growth and job opportunities. In February 1968, Business Week ran a story headlined "A Tight Labor Market That Doesn't Really Hurt," reporting that "after three years, with unemployment rates near or below 4%," businesses were increasingly recruiting women, blacks and other minorities, expanding their job-training programs and providing more opportunities and incentives for promotion. …