A GROWING BURDEN ON THE WORKERS
Brand., H.
A central problem of the American economy has been its cyclical volatility. Swings of widening magnitude have dogged it since the mid-1960s. Industrial production—to take but one indicator— fell...
...The CEA's definition of structural unemployment obscures social causes...
...For example, unemployment among youth is attributed to lack of work experience (also to the existence of the minimum wage), while long-term unemployment is laid to workers' frequent unwillingness to relocate and accept lower wages...
...Thus economic and industrial planning would be designed to alleviate structural unemployment...
...but if he was unemployed for less than 26 weeks, income fell to $16,500 and if unemployed for more Staying the Course with the Neocons Like most people in this country who try to know what's going on, we get our news from the New York Times...
...All of which suggests that the CEA remarks about "disincentives" are little more than a slur on American workers...
...Report from Patterson, N.J., that its entire library system has been closed down for lack of funds...
...Overriding this possible difference, however, is the Administration's endorsement of Federal Reserve policy as being in accord with "the fundamental guiding principle in an inflationary economy [of] a gradual reduction in the rate of growth of the money stock until the rate is consistent with price stability...
...This is indicated by its projections, according to which an unemployment rate in excess of 8 percent of the civilian labor force would prevail through 1986, and of well above 6 percent until 1988...
...Thus there was a breach in the ruling consensus about economic policy...
...Still, the concept of structural unemployment is of value despite the shallow definition the CEA gives it...
...and advocacy of free trade—meaning 138 endorsement of unrestricted imports without, however, protecting workers or regions losing jobs and income, except by retraining efforts (which usually do not begin to meet older workers' needs...
...Unemployment compensation, writes the CEA, "seems to have increased the incidence and duration of unemployment" by producing "adverse incentive effects...
...THESE ITEMS could be multiplied many times...
...This made it easier to put pressure on the banks' lending ability by simply not adjusting, or adjusting only partially, to the increased need for funds arising from the greater deficit...
...reductions in unemployment insurance payments and a narrowing in eligibility standards...
...The banks rendered credit restrictions less effective by borrowing from international capital markets to finance domestic loans...
...We rubbed our eyes: no, we hand't misread, that's what it says...
...Many could not afford the higher prices schools were forced to charge when the Reagan administration cut the federal contribution...
...To begin with, the CEA opposes efforts to reduce cyclical unemployment through public works programs...
...It favors more training programs, such as those being financed under the Job Training Partnership Act...
...Congress's Joint Economic Committee reports that cities it surveyed realized only 60 percent of the spending they had budgeted for capital purposes in 1981...
...The Federal Reserve, however, has virtually dismissed this concern...
...January 10, 1983: Anthony Lewis writes: "Last year [1982] one million children from low-income families dropped out of the Federal School Lunch Program...
...Layoffs and labor-saving changes in the production process are bound to improve labor productivity—also now under way...
...DISSENTER than 26 weeks, to $10,200...
...Eventually, two developments strengthened the Federal Reserve's hand...
...These cuts—plus higher federal deficits—are the price the Reagan administration has chosen to pay for huge tax cuts for the wealthy and an unprecedented peacetime military buildup...
...Furthermore, the cyclical peak in industrial production that was briefly reached in mid-1981 represented merely a shortlived recovery to levels last attained in early 1979...
...Key programs such as employment and training, community services, Center for Disease Control, and economic development have been cut by more than 50 percent...
...Losses in federal aid have grown every year and by 1985, if current spending continues, federal aid to states will fall to pre-Great Society levels...
...They might lead a dispassionate observer to conclude that this country is in deep trouble...
...This intention can be readily inferred from numerous actions and from many statements that occur in the Economic Report...
...How seriously this Act is taken by the Reagan people may be judged by the trivial amount allotted to it in the 1984 budget ($1.9 billion)—a cut of 22 percent from parallel expenditure in the current fiscal year...
...This finding sustains the Federal Reserve's intent not to "monetize" the federal debt, and to keep credit tight until price stability has been ensured...
...The CEA relates it to personal and demographic characteristics...
...As a result, farmers, state officials and legislators speak darkly of mounting anger, frustration and militancy among those who may be forced to sell out farmland that, in some cases, their families homesteaded a century ago...
...These factors have remained unexamined since the Automation Commission's reports in the mid-'60s...
...The drop repeated a steep if less extended decline in the spring of 1980...
...To avoid "an [economic] expansion so rapid as to lead to rapidly increasing inflation," the CEA would brake too rapid a decline in the unemployment rate—it would not permit unemployment to drop below 6 percent...
...The U.S...
...Industrial production—to take but one indicator— fell 12 percent in 1981-82, somewhat less than in 1974-75, but it persisted over a more extended period...
...President Reagan is well on his way to achieving a historic shift of resources under the guise of New Federalism...
...It should be regarded as part of a broader program that includes, either explicitly or by implication, reductions in the minimum wage...
...The present CEA (which represents the official Administration view) associates inflation with a "threshold" rate of unemployment, estimating it to lie now between 6 percent and 7 percent...
...What it means by "sound" we have discussed above...
...The impact of the current recession on state and local revenues has been compounded by severe reductions in federal assistance to state and local governments...
...His latest budget will show even more evidence of his plan to gradually end the federal role in a wide array of health, nutrition, education, training, income maintenance, social services, and infrastructure programs...
...The corresponding 1981 figures are $25,000 median income for a family in which only the husband works...
...The conservative right, which has usually rejected such planning, views structural analysis as an aid in the effort to lighten the burden Starving Our States and Cities The following is taken from a first-rate, detailed report issued by the American Federation of State, County and Municipal Employees (Gerald McEntee, president) and the Public Employee Department, AFL-CIO (John Leyden, executive director): State and local governments are facing a financial squeeze of a size and scope unknown since the Great Depression...
...The deflationary policies of the Reagan administration greatly burden the American working people, and no fundamental relief from this burden seems in sight...
...Below this threshold rate, it is said, inflationary wage claims would ensue, pushing up prices...
...If, as the CEA writes, in recent months "the momentum of high inflation built over the past 15 years was broken, and inflation was reduced to its lowest rate in a decade," this simply demonstrates that inflation can indeed be broken if unemployment rises high enough, long enough...
...THE RESULT: FISCAL CHAOS...
...January 3, 1983: Report from Pittsburgh that Sheriff Eugene Coon of Allegheny County has withdrawn 42 private homes from a list of properties to be foreclosed...
...This, too, failed to reduce the rate of inflation, notwithstanding much to-do about an "unemploymentinflation tradeoff...
...According to H. C. Wallich, a senior member of the Federal Reserve's Board of Governors, "A study made by the staff of the Federal Reserve Board suggests that the present capital stock is not seriously inadequate and that a higher rate of saving and investment than has prevailed on average in the past would not yield large benefits...
...139 of macroeconomic policies and their inevitable inflationary impact when they address cyclical recovery—and as an aid in the effort to achieve less wage "rigidity" through increasing the supply of trained labor...
...The downward pressure on wage levels that will in time result from these policies, together with ongoing and proposed reductions in income maintenance payments, will no doubt drive down labor costs...
...Yet the National Commission on Unemployment Compensation has urged a replacement ratio of 66 percent...
...Capital investment will therefore continue to lag...
...However, tax cuts that were supposed to favor capital investment have yet to offset continued high interest rates, and it is doubtful that these cuts can be sustained in view of the high budget deficits...
...The National Governors' Association reports that states will run deficits totaling $2 billion by the end of this state Fiscal Year (June 30...
...Cyclical volatility may therefore lessen, but a long span of 137 stagnation, punctuated perhaps by minor business fluctuations, seems in the offing...
...In the '70s it became ever more difficult to sustain these fluctuations of economic policy...
...These rates would be ensured by a restrictive monetary policy...
...Structural unemployment is defined as a residual that persists in periods of cyclical recovery...
...I guess be hearing from some banks," said the humane sheriff...
...Monetary policy was, of course, not designed to cope with the petroleum and feed-grain price hikes of those years...
...Inasmuch as no attempt was made to control inflationary price rises administratively—except between 1971 and 1973—they have accelerated...
...Such payments reduce the economic pressure to find work immediately, encouraging a longer period of job search during which the unemployed worker hopes to find a more attractive job than might otherwise be found...
...More important, lowering wages stifles expansion of consumer spending, upon which at least three-fifths of the national product still depend...
...But how would it lower them...
...Unemployment receded from its cyclical high in 1975 but was deliberately kept above 5 percent thereafter, and was allowed to rise in the late '70s and early '80s...
...But others know better...
...Both ends of the American political spectrum have had an interest in promoting a structural analysis of unemployment and policy approaches concerning unemployment...
...THE ECONOMIC REPORT contains a table showing that the median income of a family with both husband and wife working was $31,600 in 1981, but this was reduced to $23,000 if one of them became unemployed for less than 26 weeks and to $17,000 if unemployed for more than 26 weeks...
...In Commentary, the magazine sponsored by the American Jewish Committee, we read in the January 1983 issue in an article by James Nuechterlein, a professor from Valparaiso University, that "If Reagan can keep his ideological instincts as his servant and not his master . . . he could become the most successful American President in half a century...
...One was the HumphreyHawkins Act of 1978, which virtually superseded the Employment Act of 1946 and in effect mandated that the fight against inflation be given priority over the creation of employment...
...This, of course, is written in an antagonistic spirit...
...The writers have forgotten that unemployment insurance is paid the worker as a matter of right, and is intended to sustain his dignity...
...The CEA speaks of both cyclical and structural unemployment...
...All of this cutting, however, will not reduce the size of government by one iota—nor will it cut significantly into the deficit...
...Whatever the "autonomous" sources of this volatility, it was primarily generated by monetary and financial policies, largely formulated by the Federal Reserve...
...The CEA would also modify unemployment insurance so as to mitigate its supposed "disincentive" effects—which in practice would mean greater pressure on workers to accept lower-paying and unsuitable jobs...
...A headline: "California Weighs End of Free College Education...
...This position, of course, represents a source of potential dissension between the Reagan administration and the Federal Reserve...
...They might lead an extremist to conclude that American capitalism isn't working quite as well as its defenders claim...
...Data Resources, Inc...
...January 16, 1983: Report from Jamestown, North Dakota: "All across the farm states, there is mounting alarm that the depressed state of the country's agricultural economy is going to reap a grave harvest of failures and foreclosures this year...
...THE MAINTENANCE of unemployment rates above an assumed inflation threshold represents but one of a number of measures designed to moderate or even depress wage standards...
...For the liberal left, such an analysis enables an emphasis on institutions that protect jobs or, failing that, workers' income and social status...
...Is this not sufficient evidence to make a mockery of the claim that unemployment payments create "disincentives" to work...
...The Administration's endorsement of Federal Reserve policy is in harmony with its intention to reduce wage levels...
...Tightened credit was to bring about economic slowdown and raise unemployment, but political pressures eventually would induce stimulative fiscal and monetary measures, reinvigorating the economy and improving employment prospects...
...Congress, by taking expansionary action, would stymie the central bank's restrictive monetary measures, only to have such action undone by the bank...
...The lesson of the past two years is that this price is too high—in terms of both macroeconomic performance and the standards of living of millions of Americans...
...The other was the growing size of the federal budget deficit in relation to the total supply of funds...
...Conference of Mayors reports that its member-cities could meet no more than 43 percent of the overall demand for emergency services in FY '82...
...THIS REPORT documents for the first time the full extent of Reagan's cuts in federal aid to state and local governments for vital social programs: • Since 1981 state and local governments have suffered $57 billion in federal cuts...
...The Federal Reserve's premise in fighting inflation has always been that resources must be idled so as to deflate prices and wages...
...The intention to strengthen capital formation has been at the core of President Reagan's economic program, and this has been the raison d'etre for huge tax cuts and liberalized depreciation set-asides...
...This breach in the consensus has been slowly bridged in the past two years...
...Others, so poor that they could have had their lunches free, found that their schools had given up the program because of new federal Regulations...
...cuts in aid to workers hurt by imports (already enacted...
...In judging the effectiveness of monetary policy, all we need to remember is that the dependence of government, business, and households upon external funding has greatly increased in recent decades and, as the "crowding-out" thesis also suggests, this has placed great power in the hands of the Federal Reserve...
...It believes that "the only way" to relieve such unemployment is "to achieve a sound recovery from the recent recession...
...The rate of unit labor cost already has shrunk...
...In 1982 only about 44 percent of the average weekly wage paid by business was replaced, for the jobless, by unemployment insurance...
...The CEA protests that it does not regard highthreshold unemployment rates—a large component of which it considers to be structural—as "desirable" or "inevitable...
...The former results from a cyclical decline in economic activity, and thus arises from identifiable social causes...
...January 8, 1983: Dispatch from Detroit that the United Automobile Workers and General Motors have joined to provide food parcels for the unemployed...
...forecasts that construction spending by state and local governments will fall 5.5 percent in 1983, following declines of 9.4 percent and 8.6 percent in 1981 and 1982, respectively...
...Instead, it will be used to purchase military hardware and further line the pockets of the wealthy...
...This "crowding-out" worries the Reagan administration, judging by its latest Economic Report (January 1983) and Annual Report of the Council of Economic Advisers (CEA...
...Because the Federal Reserve declined thus to "monetize" the debt, it "crowded out" business and households from the capital and money markets...
...Among these would be job displacement from technological change, changes in product design, the lack of institutional bridges between school and work...
...This worry is the main reason, says the Administration, for seeking to reduce the deficit, for "crowding-out" would retard the formation of new capital, depress living standards, and so on...
...Over a period of weeks, from late December 1982 to mid-January 1983, we clipped a few items: December 28, 1982: Lead story on Bethlehem Steel closing its plant in Lackawanna, N.Y., leaving almost 8,000 workers jobless...
...The CEA's proposals are in line with such conservative thinking...
Vol. 30 • April 1983 • No. 2
