FDR vs. the Great Recession
We must tackle four big issues to revive our economy
By Stephen Herzenberg
I keep seeing this image of Franklin Roosevelt rolling over in his grave.
What might have our late, great President perturbed? Today’s debate about how to get the economy going again.
Since the start of the Great Recession, the U.S. economy has shed more than 7 million jobs, 208,000 of them in Pennsylvania. We are living through the deepest economic contraction since the Great Depression.
In the 1930s, Roosevelt stabilized financial markets and used government spending to create demand in the face of flagging consumer spending and business investment. In the Great Recession, the Obama administration has, with significant success, taken similar steps. As a result, the U.S. economy expanded at a 3.5 percent annual pace in the third quarter and job losses have slowed.
But it hasn’t been enough. Unemployment is still rising, inching past 10 percent last month.
Double-digit unemployment carries a lot of symbolism. As Harvard economist Kenneth Rogoff has noted, Congress is under pressure to do something.
So far, momentum is building for a federal tax credit that would give companies an incentive to hire new employees. Never mind that many companies will hire new workers with or without billions more in taxpayer subsidies or that other businesses will play games to increase their new-employee count.
As Mr. Rogoff says, the real appeal of a job-creation tax credit may be that it “beats doing nothing.”
But hold a job-creation tax credit up against what Roosevelt did in the New Deal and it looks like, well, nothing.
Roosevelt attacked the root cause of The Depression ## the failure of middle-class purchasing power to grow, which caused income inequality to spike in the 1920s while speculation by the well-to-do generated a stock market bubble. Sound familiar?
It should. In the current decade, U.S. income inequality reached the levels of the late 1920s. In recent years, the richest 1 percent of Pennsylvanians have been taking home 68 cents of every dollar increase in income.
To get middle-class consumption going again in the 1930s, Roosevelt championed the “Big Four” social policies:
• a minimum wage to lift purchasing power at the bottom;
• a law strengthening workers’ rights to unionize, laying the basis for the emergence of America’s middle class through manufacturing unions;
• unemployment insurance, which enabled jobless workers to feed their families; and
• Social Security, which enabled the elderly poor to avoid destitution and increase their consumption.
So far, what is Washington offering as the Great Recession’s Big Four? The Big Zero.
To be fair, Congress is dedicating a lot of time and energy to health-care reform, which will yield economic dividends for decades to come. But what about policies specifically designed to reinvigorate the middle class?
There are some ideas kicking around the margins that can help shape what today’s Big Four might look like. Three of the best ideas would update elements of the New Deal.
First, the minimum wage should rise again with the overall wage level. Though long forgotten, between 1938 and 1968, the purchasing power of the minimum wage more than doubled. Let’s put minimum-wage earners on that same track today.
Unionization is another important tool to rebuild the middle class, starting in the service sectors that pay too poorly ## in offices, health care and child care, supermarkets and retail stores, hotels and restaurants, and building services.
Unionization won’t cause these local jobs to disappear; you can’t outsource a nurse’s aide job at the local hospital to Tijuana. If these workers earned $15 per hour plus benefits ## instead of $10 per hour with no benefits ## the American middle class would come back. Empowering workers to achieve this specific change is why Congress must pass a proposed federal law that restores workers’ freedom to create a union ## the Employee Free Choice Act.
We also need to update our unemployment insurance system. Today’s unemployed workers don’t just need income to tide them over until the assembly line starts moving again. Unemployed ## and many employed ## workers also need more access to job training that is linked to credentials and career pathways.
The final piece of today’s Big Four would be a massive investment in an environmentally sustainable low-carbon economy, implemented in a way that rebuilds our fragile manufacturing base and expands the number of family-sustaining jobs.
FDR did a lot for our country some 75 years ago. It’s time to build on his legacy with ideas for long-term recovery equal to the scale of today’s recession. And to let the poor man rest in peace.
Stephen Herzenberg is executive director of the Keystone Research Center in Harrisburg www.keystoneresearch.org .