COPING WITH RECESSION
Heilbroner, Robert & Alperovitz, Gar & Fraser, Douglas & Cohen, Patricia & Shull, Leon & Arrow, Kenneth J. & Gotbaum, Victor & Tyler, Gus & Lekachman, Robert
We asked our respondents the following questions: Suppose—what is unlikely—that you were in a position crucially to influence domestic social-economic policies during the next immediate period....
...A policy of free trade (with suitable exceptions for automobiles and steel) must be declared the inviolable principle governing foreign trade...
...As the Depression of the 1930s illustrated, the American economy cannot insulate itself from a worldwide downturn...
...We have ample evidence both here and abroad that job-training programs do work...
...The pay would have to be Strategies for coping with the immediate crisis should focus first on individuals, then on markets, and finally on large economic entities...
...4. A WPA-type program with small, easily startable, and easily terminable projects would make a good deal of sense, though it must be undertaken frankly with an increase in the deficit, not out of tax increases that would largely frustrate its employment goals...
...States and localities, already hard-pressed by the impact of slowing revenues and bound by constitutionally mandated balanced budgets, cannot provide the necessary income or services to the unemployed...
...Suppose, indeed...
...It is not possible to have a "consumer-led recovery" if national policy shifts national income from the mass of consumers—wage and salaried employees— into the pockets of investors who don't invest in productive enterprises...
...The present crisis requires even greater attention to detail because the workers' and the economy's needs are so varied...
...My second wish, accordingly, is for a sensible incomes policy...
...Stimulating investment and creating employment opportunities require a shift in income from the affluent to low- and middle-income earners, and a shift in spending from the military to the civilian sector...
...We need a coordinated social and economic strategy designed to deal with the related problems of increasing unemployment and a stagnating economy...
...These should take achievements in other capitalist nations as the nearterm goals for the U.S.: subways as modern as Toronto's, a health system as laudable as that of the Dutch, an old-age retirement plan as generous as the Germans', an unemployment compensation and retraining scheme as complete as Sweden's, a degree of governmentindustrial cooperation as flexible and effective as the Japanese...
...Given three wishes, my first would be a law that would impose stiff penalties on the president of the United States and all other public officials who continue to ignore the Employment Act of 1946 and the Humphrey-Hawkins Act...
...THIS IS THE BEST POLICY I can think of for assuring the ignominious exit of the Republican party and the political and economic education of the American people...
...It is useless to apply Keynesian methods to stimulate the economy domestically if increased buying power is used to buy goods and services from other lands...
...The need for such targeted stimulus programs is especially evident in view of the failure of "real" interest rates to drop in relation to the prime rate...
...Administrations have violated both the letter and the spirit of the legislation...
...The irony can hardly escape notice, even 159 by the president, who acknowledges that the country's economy is undergoing major structural changes...
...This is to say that wherever concentrated market power is present, inflation tends to take off long before real pressure upon human and nonhuman resources is felt...
...In any case, inflation has been at least partially contained, though by what is apparently the only technique available to a capitalist economy—massive unemployment, which has reached levels unapproached since the Great Depression...
...Such a disparity cannot be defended on grounds of compassion or economics...
...Its elements: • A coordinated five-year investment effort that begins with short-term, low-skilled jobs in (for instance) energy conservation and watershed maintenance—then phases these down as longer-term infrastructure, housing, and industrial investments come on-stream...
...But I have begun to cheat on my three wishes and must here stop...
...c) Jobless benefits—less than half of those who are out of work are receiving unemployment insurance either because they were never covered or have exhausted their benefits...
...MY THIRD piece of legislation would'seek global approaches to unemployment...
...child abuse...
...They will, however, benefit few workers and will do nothing to help general economic conditions, which are far more im157 portant in maintaining and improving worker welfare...
...The Federal Reserve should be compelled to operate within broad guidelines aimed at lowering interest rates and restricting purely speculative financial activities...
...They will use the additional income because they need to...
...A sectoral policy to "prevent another round of 1970s type inflation" should maintain grain reserves, expand energy reserves, and provide for standby controls and rationing to curtail price explosions when short-term gluts in both areas are eliminated (or if military events in the Middle East, or bad harvests, force disruptions...
...With that rise comes the increasing probability of any individual worker suffering a bout of unemployment...
...During the past decade, the level and the duration of unemployment have steadily risen...
...This would propose a $41 billion plan with three basic components: (a) Job creation—over 3 million jobs could be produced through public works and community service projects...
...Inflation disorganizes the economy in a number of ways but does not do the direct damage inflicted by unemployment...
...The third immediate need is for a series of measures at the national level to lower the burden of unemployment for those who experience it...
...It is not hard to understand why...
...This economy is simply not producing enough jobs...
...It should be targeted to—and based upon— plans developed in local communities...
...will average 101/2 percent, or more than 111/2 million people...
...The creative impulse must come in adapting means that have already proved feasible in other capitalisms to the particularities of America's cumbersome framework of government, the constraints of American conservative ideology, and the capabilities of America's backward economic institutions...
...They have promoted unemployment on the shabby theory that a recession is necessary to check inflation...
...They are violating the law of the land...
...To fix responsibility where it properly belongs and to identify preelection monetary games, I suggest a simple solution: empower the secretary of the treasury in the name of the president to issue instructions to the Board of Governors of the Federal Reserve System exactly as, since 1946, any English chancellor of the exchequer can determine Bank of England lending and monetary-creation policy...
...I have seen it...
...They have also failed to activate the mechanisms of the Humphrey-Hawkins Act to pursue a policy of balanced growth...
...But, if the money is used just to buy and sell pieces of paper to yield quickie profits, those capital gains should be taxed at something close to 100 percent...
...Establishing a measure of public control of capital could take several forms...
...Last year, in its embarrassing special session, Congress haggled endlessly over a five-cent gasoline tax and a minute job creation measure...
...The realities of 161 market organization require that these controls be permanent, so that even should they be temporarily suspended they can be swiftly reimposed as necessity requires...
...The rich are getting richer and the poor, who are everywhere, are poorer...
...A jobs program is the first measure...
...Unlike people in a high-income bracket who have a low marginal propensity to use extra money, lower wage-earners do not have the choice of saving or spending...
...Not only are people suffering hunger and deprivation, but small businesses and local tax bases are collapsing in turn...
...Three wishes for 1983...
...But this is not a current problem, only a potential future one...
...But they are expensive...
...Job training combined with support for public and higher education will ensure that new, inexperienced, and low-wage earners (such as women and minorities) will be taught skills that are now in demand while older dislocated workers are given incentives to retrain and develop their experience in other fields...
...The second step toward turning around the economy is an equitable tax reduction...
...Assuming an average duration of unemployment to be between four and six months, then a maximum of almost 35 million Americans may experience unemployment this year...
...As a result, we are experiencing increased inequality—both of opportunity and of income and wealth—as well as a hardening of the spirit...
...I am offended by the question put to me by the editors of Dissent...
...Not that it much mattered, the first was enacted and the second perished...
...Although the Fed has recently altered its policy somewhat, causing nominal interest rates to decline, the real rate has remained high...
...Such a plan must be large in scale, minimally initially double the 1976 Carter administration's two-year stimulus package of $35 billion —which was put forward with 7.5 percent unemployment in a $2 trillion economy (compared with 10.4 percent unemployment in our current $3 trillion GNP...
...The package of necessity-related anti-inflation sectoral plans should be part of an incomespolicy deal to maintain wages, prices, and profits in reasonable ranges—in exchange for full employment and greater stability in the nonlabor components of food, energy, housing, and other major consumption expenditures...
...More than coincidence induced Paul Volcker and his dour colleagues suddenly to relax monetary policy, allow interest rates to subside, and unleash a wild Wall Street boom just in time to improve Republican prospects in the November elections...
...The steel industry limps along at less than 30 percent of maximum output...
...Repairing our deteriorating infrastructure, maintaining public parks and forests, and building up our dwindling housing inventory would employ people while meeting essential needs...
...This step is indispensable...
...The automakers could double output without straining...
...Within months of its creation, the New Deal's Works Progress Administration put 3 million to work on constructive projects of all kinds...
...Each requires a different approach to both training and to job placement...
...The only way to prevent these areas from bleeding to death is to assure continuing unemployment benefits to those whose benefits have run out...
...Unemployment means that goods that could be produced are not...
...Above all, faith must be kept alive in the natural capacity of a free-enterprise economy to generate spontaneous growth...
...Yet we are the only major developed country where unemployment benefits expire after six months...
...homelessness...
...Reductions in military spending, closing tax loopholes, and capping benefits for upper income groups should develop more than adequate financing in out-year revenue flows...
...Daily we hear a litany of the economic ruins: increased alcoholism...
...Meanwhile, it may provide time for educating the country for new departures...
...Moving toward social control of the investment process would be a welcome change...
...It will lower interest rates and allow them to remain lower this year, thus spurring economic recovery...
...First priority is jobs...
...All efforts to implement a nationally coordinated policy of governmentguided and financed modernization should be resisted...
...Such a policy, contrary to conservative wisdom, should focus upon prices in concentrated industries rather than wages, which for several years have been lagging behind a rising cost of living...
...Therefore, even from the purely economic viewpoint, unemployment is a more serious issue than inflation...
...The military budget needs all the support it can get, because it generates economic advance as well as national security...
...Hence we need legislation that would empower the United States to meet with other countries to work out a planetary New Deal and that would commit the United States, if it fails to reach global growth strategies, to regulate imports, currency, and capital flow to maintain and strengthen the American economy...
...Such a use of the taxing power to redistribute income would provide the necessary market for our market economy...
...Since the Federal Reserve's Mr...
...So, second, there must be a new program of targeted job training, retraining, and placement for America's work force...
...But this does not seem to be a time for America to lead...
...The sources of personal income—payroll checks and government assistance—have all but disappeared in sections of the Upper Midwest and Northeast...
...When the private banking system doesn't work, the government must act as the banker of last resort...
...The 1981 Tax Act should be rewritten to void all those tax benefits for 163 families with an income of more than $50,000 and the added revenue should be used to provide greater tax relief to those making less than $50,000, with the greatest benefits going to those in the lowest income categories...
...A second way of transferring investment decisions to public control would be to modify the rules governing investments by both public and private pension funds...
...It will also generate revenues that the federal government can use to deal with unemployment-related problems...
...Finally, Congress should follow the lead of certain progressive states and enact legislation that mandates some form of public accountability for capital decisions...
...Industrial policy loans and other assistance should be integrated with overall macro-planning —with the provision that help for both basic- and high-technology industries be targeted to communities with major unemployment and conditioned upon expansion of worker participation, ownership, and co-ownership of facilities with community and neighborhood groups...
...My advice to the Reagan government is to proceed fullsteam ahead...
...2. Contrary to a lot of opinion among liberals, we should be in no hurry to reduce the federal budgetary deficit...
...Until we institute democratic national and regional economic planning directed toward the goal of full employment, we will have to take individual emergency measures to deal with each immediate crisis...
...Labor and other progressive groups are in general agreement on the need for a national development bank whose investment decisions are guided by 158 a representative board...
...even the Wall Street Journal has noticed it...
...Then there is the Federal Reserve, that ostensibly independent agency, which between elections plays its role as scapegoat for whatever goes amiss in presidential and congressional economic policy and during election years suddenly cooperates with the current occupant of the White House...
...To achieve this end, certain steps are needed now...
...Suppose you could propose, say, three legislative items for coping, not with the basic problems of our time, but with the present crisis—plants closing down, industries collapsing, large-scale unemployment, etc...
...A national job scarcity deserves a national solution, including nationally provided longer unemployment benefits, rather than state and local welfare payments...
...So the federal government must provide some targeted fiscal relief to those states and localities hardest pressed by unemployment...
...As the economy expands, we will have to be concerned about an excessive diversion of savings away from private investment to purchasing government bonds...
...those with skills, but without job experience...
...Our inability to provide jobs—for a generation of minority adults who have never experienced productive employment...
...Nevertheless, these and other industries are so organized that at the slightest hint of recovery their masters push prices up, stimulate wage demands from unions, and use them as justification for further price hikes...
...Along with allocating consumer credit, we must begin to think seriously about allocating investment capital to modernize existing industries and to create whole new industries along socially productive lines...
...The economy now operates at about twothirds of its capacity...
...That will have two effects...
...So we need legislation to put teeth into existing legislation...
...Lower interest rates not only contribute to U.S...
...The same tax law would penalize the "capitalists" who are using their capital to play crap on Wall Street instead of modernizing productive facilities...
...What would you suggest...
...I won't try to guess exactly what form these tax increases will take...
...those without either...
...These two pieces of legislation commit the United States to full employment and provide a machinery for national planning...
...164...
...In addition to new revenues, there must also be a substantial shift in budget expenditures from defense to job creation, training, and aid to states and localities...
...These transactions drain credit from productive capital investment and drive up interest rates...
...They require a level of business-labor-government cooperation that is time-consuming but necessary to the results...
...In short, there will have to be a tax increase to return the federal budget to sanity...
...It was inflation rather than unemployment that was responsible for the tax revolt whose crippling effects on local and state governments are just beginning to be seen...
...It is vital to maintain a basic posture of minimal government intervention...
...This, the world's largest developed economy, currently has no meaningful job training program in place...
...The Organization for Economic Cooperation and Development (OECD) is forecasting that 1983 unemployment in the U.S...
...for minority youths...
...God knows there's work to be done, and the public works jobs now slated by Congress won't be nearly enough to do it...
...And each deserves that...
...A third key to halting economic stagnation is to rein in interest rates...
...We see this in the protectionist movement that now, as in the past, frequently operates against imports from struggling poor countries abroad...
...A nationwide standard of minimum "community full employment" should set 4 percent local adult unemployment as the reference point to guide and target investment planning...
...There are today, as there have been for the past five or six years, two dominating shortterm problems in the economy: unemployment and inflation...
...This new source of finance could make loans on favorable terms to both public and private concerns that undertook useful projects and promised long-term employment opportunities...
...and those with long experience in industries to which they will not return...
...But we must recognize that the expanding economy that will result from the changed mix of monetary and fiscal policy is not going to be enough to get everyone back to work...
...Expanding the supply (and subsidizing the cost) of low- and moderate-income housing together with a community-based national health service is needed to lower costs in these sectors...
...I can fill twice or three times that quota...
...My second proposal would be reform of the tax law to redistribute and retarget America's income and wealth...
...Reducing unemployment must certainly take precedence at this time...
...It is also impossible for any major nation to seal itself off from world trade, world changes in currency, world flow of capital...
...I am in close touch with subversive elements within the Reagan administration, although bound by honor not to divulge my channels of contact...
...Instead, they have ad hoc'ed their blundering way toward unbalanced nongrowth...
...But I will push to levy them on those who received the largest benefits from the Reagan cuts...
...There must also be an extension of basic health-care benefits for laid-off workers and their families along with large-scale employment and training programs to supply both short-term income and long-term skills for socalled structurally unemployed workers...
...Wneed a plan for sustained full production —the halfway house between a jobs "program" and national economic planning...
...b) Training and education—if the economy is to adjust to changing demands and advancing technology, an investment in human capital is essential...
...Without a renaissance in these major U.S...
...The tight monetary policy currently pursued by the Federal Reserve Board and supported by the Reagan administration is choking off investment, especially in such markets as autos and housing...
...1. First is an increase in the rate of monetary growth...
...First must come the recognition that Reaganomics has failed and is responsible for much of the pain...
...The Federal Reserve Board should be put within the Executive Branch (probably in 156 the Department of the Treasury) and be required to accommodate a serious expansion...
...Such action would significantly boost personal income, since over half of the currently unemployed workforce is not receiving UI benefits...
...and even deaths, such as the unemployed Chicago couple found in the car they had moved into after eviction from their home...
...for blue-collar workers affected by both recession and structural changes in their industries of long-time employment...
...And, after we start moving along that road, we can work on a complete agenda to insure that this doesn't happen again...
...Volcker insists on staying a catastrophic monetarist course, Congress should enact special legislation to allocate credit for the purchase of homes and autos...
...recovery is linked to global recovery...
...3. Laws to require notice of plant closings and some severance pay are just and proper to enable workers and localities to make better adjustments...
...Leaving major capital decisions wholly in private hands has proven to be a socially bankrupt policy...
...IN SUM, I am proposing that we put back some tax revenues and use them and make military spending cuts to provide better for the unemployed, to put the economy back to work through much needed repairs of roads, bridges, sewers and other public structures, and to target meaningful job training and job placement for our workers...
...As currently managed by bankers and investment houses, these funds are often directed in ways that destroy the jobs of their contributors...
...John Kenneth Galbraith points out that "compassion and fairness have a strongly functional aspect...
...Not only are they themselves vital questions for the well-being of the people but their existence sours the ambient society and creates legitimate anxieties that inhibit generosity toward others...
...Given the growth in the total labor force, a similar effort today would need to employ 6 million jobless people...
...You have seen it...
...I shouldn't object to eliminating the MX, B-1 bomber, and similar military boondoggles...
...I'd rejoice at tax reforms that restored progression in personal income taxes and liberated heirs from the burdens of their riches...
...At a time of deep depression, government spending helps sustain the economy, and tax collections take away private purchasing power...
...We see this even more strongly in the new niggardliness with respect to welfare and Medicaid and even that old pet of middle-class generosity, education...
...It is common knowledge that two of the nation's biggest industries—housing and auto —are on the ropes as a direct consequence of credit restrictions...
...The money supply should not be taken as a goal in itself, as the monetarists have argued...
...EDS...
...The deficit must be depicted as a monstrous thing, which weighs down any chances for recovery: hence welfare spending must be further trimmed...
...Suppose," they write, "—what is unlikely—that you were in a position crucially to influence domestic socioeconomic policies during the next immediate period...
...The fact is, spending stimulates the economy, and low- and middle-income earners are most likely to spend...
...Special financing plans provided by homebuilders and by automakers and auto dealers have yielded a tiny rebound in sales, but massive action by the central banking system is required to put these industries back on their feet...
...prosperity, they are essential if Third World nations are to revive their own economies and pay off the debts owed to U.S...
...It is of great importance that taxes be as regressive as possible, in order to stimulate "savings 160 and investment...
...Unless we take control of the economy and reverse these fiscal and monetary patterns, we will not reverse the economic decline...
...The unemployed are a mixture of those without skills...
...Because of this, only 40 percent of those currently unemployed are receiving benefits...
...It is not that such programs don't work...
...Many voices call for new strategies to deal with joblessness, but I see no reason not to consider an old strategy that served us well in the past...
...This may not seem sufficiently innovative...
...They ought to be indicted and convicted...
...creditors...
...They guide income to the people who can be counted on to make economically effective use of it...
...industries, any type of recovery is impossible...
...With that recognition will come a change in the mix of monetary and fiscal policy...
...Emergency benefits must be provided until a job is found or supplied...
...What can be done about it...
...for women returning to and students entering the labor market for a meaningful career—is a societal and human tragedy...
...wife-beating...
...A sensible response to the present emergency starts at $40 billion in direct job creation, still an amount comparatively much smaller than New Deal expenditures upon the WPA, CCC, PWA, and NYA...
...Reviving existing depressed markets is, of course, only part of a total recovery strategy...
...Still, I must abide by the editors' instructions...
...The purpose of an economy, after all, is to produce goods—public or private as the case may be...
...Technical assistance, training funds, and other assistance should steadily build up a capacity, locally, for true citizen-based planning efforts...
...Under Reagan's three-year tax cut, the majority of taxpayers (80 percent) received no net tax savings, while the richest 20 percent gained 162 $36 billion...
...The real rate of interest (interest rate adjusted for inflation) should also be a target, as should the level of gross national product...
...If money (capital) is used productively, especially to reinvigorate an industry that is vital for our national survival and prosperity, the investor should get a fair break in taxes...
...The huge losses in federal tax revenues generated by Reagan's giveaways will cease...
Vol. 30 • April 1983 • No. 2
