« Radio Economics Interview | Main | How the World Sees the U.S. after Katrina »

Saturday, September 03, 2005

Reducing Economic Insecurity

Robert B. Reich, former secretary of labor, has ideas on how we might reverse the growing economic insecurity felt by workers.  His theme is that we are returning to mistakes we made in the past, an era of protectionism in foreign trade, and increasing impediments to free trade and the efficient use of public and private resources internally.  Each of these impediments, when put into place, is well-intentioned, currently the justification is saving jobs.  But in the end, collectively, such impediments to the free functioning of markets are self-defeating.  We are better off with free, open, and fair trade internally and externally, but before reforms allowing free trade can take place, the typical member of the society must feel sufficiently secure:

An Economy Raised on Pork, by Robert B. Reich, NY Times: The old work-force compact is in shreds. Paychecks that rose with productivity gains through the middle decades of the 20th century no longer do so. Since the early 1970's, national product per person has grown more than 75 percent, but the median wage of male workers has risen barely two cents, adjusted for inflation, from $15.24 in 1973 to just $15.26 last year. Family incomes are up only because wives have gone into paid work and everyone's putting in more hours. Job loss often means loss of health insurance and a tax-advantaged pension. ...

Forty years ago, free-trade agreements passed Congress with broad backing because legislators recognized that they helped American consumers and promoted global stability. But as job and wage insecurity have grown, public support for free trade has declined. ... The increasing insecurity of ordinary workers also imperils our national defense by handcuffing the Pentagon. It can't shift the defense budget to fighting terrorism because of local fears that well-paying jobs will be lost. ... Its recent base-closing recommendations ignited a political firestorm ... Consider, finally, the pork that's been larded into the federal budget. Republicans may collectively oppose wasteful spending, but as individual legislators they've created more pork than any Congress in history. ... The president reassured the nation that it would, at the least, "give hundreds of thousands of Americans good-paying jobs." The new … energy bill cost twice what the White House sought because it's laden with what Senator Pete Domenici, the New Mexico Republican who ushered it through Congress, defends as measures to create "hundreds of thousands of jobs." ... Don't blame the politicians, though. Whatever the policy at stake - trade, defense, transportation, energy - it's likely to morph into a jobs issue because that's what's most on people's minds…

And don't blame corporate chief executives for causing the insecurity in the first place. Their predecessors reigned over a stable mass-production system where a few major companies in each industry grew through economies of scale and didn't have to compete very hard. Wage and benefit increases could be easily absorbed or passed on to their consumers, and jobs preserved. But today's profits depend on innovation and low costs. As a result, corporations are doing everything they can to cut hourly payrolls and benefits.

But if the insecurity keeps growing, and government keeps responding to it by trying to preserve jobs and spend pork, the economy will sink of its own dead weight. Future free-trade agreements will be impossible to pull off. The Pentagon and other agencies will be hamstrung. And our fiscal imbalances will swell to more grotesque levels. Yet what's the alternative? There's no returning to the stable jobs and steady wages of the mid-20th century.

The answer is a new compact that gives Americans enough security to accept economic change. Suppose, for example, lower and moderate-income workers got a larger share of today's productivity gains through a much bigger Earned Income Tax Credit starting at, say, $6,000 for those who earned the least and gradually tapering off well into the middle class. This would go a long way toward easing the pocketbook concerns of Americans who are working harder but getting nowhere. To cushion the pain of job loss, unemployment insurance should be turned into re-employment insurance, helping people to get new jobs instead of keeping them waiting for old ones to return. Community colleges would do the retraining, in league with area businesses that identified skill shortages. Wage insurance would cover part of the difference between their old salary and their new starting wage. The new compact would also decouple health and pension benefits from unemployment, further reducing the negative impact of job loss. Employer-provided health insurance would be replaced with no-frills universal health under an expanded Medicare program, which could use its huge bargaining leverage to extract lower costs from providers and drug companies. Lower-income workers would be encouraged to save for their retirement (over and above Social Security) by receiving several dollars from the government for every dollar they put away.

The price tag for the new compact won't be cheap. My back-of-the-envelope calculation is several hundred billion dollars a year. But given the high cost of our current doomed effort to turn back the global economic tides, it would more than pay for itself. By reducing the job insecurity felt by so many, a new compact would allow Americans to focus on embracing change instead of worrying about forever falling behind.

This is the kind of progressive change I would like to see Democrats embrace.  Democrats should not fear free markets, we should embrace them when they work, and we won’t stop markets from doing their best to work in any case.  But we can do a much better job of insulating workers affected by the constant change that comes with free markets.  Change that diverts resources to their most efficent use helps us all in the long-run, but workers are hurt through no fault of their own in the process.  We can, and in my opinion we should, do much better at providing those workers and their families with economic security.

    Posted by on Saturday, September 3, 2005 at 01:26 AM in Economics, Income Distribution, Social Security, Unemployment | Permalink  TrackBack (0)  Comments (23)


    TrackBack URL for this entry:

    Listed below are links to weblogs that reference Reducing Economic Insecurity:


    Feed You can follow this conversation by subscribing to the comment feed for this post.