Guru #2

 

Jobs! Job! Jobs!

The Guru and I had been to the Home Depot store in St. Catharines to get some parts for his icewine bottling machine and we were now sipping lattes in the nearby Starbucks. (I should add that the lattes were fat free---we were both feeling a bit guilty about our ice cream binge two weeks before at the Avondale Dairy Bar.)

I asked him if he had had much reaction to his newsletter on the medium-term prospects for the US (see Posting #1 for discussion of that newsletter).

"Surprisingly good, given its bluntness---except for one fellow from Texas. He wanted to know what gave a Canadian the right to criticize the US, and added some nasty, rather unimaginative, slurs about my parentage. He ended by saying that if I didn't stop criticizing the US, he would cancel his subscription."

"What did you say to him?"

"I mentioned that one of our prime ministers had said that living next to the US was like being a mouse in bed with an elephant---that the elephant didn't care when the mouse rolled over but the reverse couldn't be true. That fact gave Canadians the right to study what was going on in the US and to comment on it. And then I poured gas on the fire by saying that the prime minister in question was Pierre Trudeau. Those old guys in Texas don't know much about Canada but they remember Trudeau, who they believe was a pal of Castro.

"That would certainly upset him!"

"And then I told him I would continue to write what I wanted and that if I hadn't heard from him in 24 hours I would cancel his subscription and return his money. Three hours later I got a two word email, "Don't cancel".

A student with a laptop in one hand and a large paper cup of hot coffee in the other was looking for a table close to an electrical outlet. We offered him our table, which was close to a wall outlet, and moved to another one.

There was a newspaper on the new table and I pointed to a headline that said that Obama was going to make a speech in September on the job situation in the US. "What do you think he is going to say?"

"He's in a tough spot. Since he took office in 2009 he and his people and the Fed Chairman have been trying to play down the potential impact of the financial crisis they inherited. That was totally understandable as they tried to restore confidence so that people would resume buying and investing. But it left the impression that this was just another cyclical recession, and that after a year of so in the doldrums the economy would suddenly start to produce new jobs at a great rate and unemployment would fall rapidly--- as happens with normal recessions. That's not happening, so he's in trouble."

"But the downturn triggered by the 2008 financial crisis wasn't the start of just another cyclical recession."

"True, but the White House hasn't seemed to be able to find the right words that would do two things: first, make the point that this isn't just another recession; and secondly, not scare the pants off consumers and investors. Perhaps there was no way to square that circle. It's going to take a decade to recover from the crisis. The 2008 book by two of your academic colleagues, Ken Rogoff and Carmen Reinhart, “This Time Is Different,” makes this point but the policy makers in Washington were already aware that this was going to be a tough slog, with higher than acceptable unemployment for a long time. There is no quick fix for what I think we should call 'the greedoholic's hangover' because it is the greedoholics that got us into this mess. The irony is that most of the greedoholics aren't suffering---they got their bailouts and are again getting outlandish bonuses---it is the rest of the population that is feeling the pain."

"What bothers me," I said, "is that some experts seem reconciled to letting millions of people suffer for years---students leaving school who are trying to find their first jobs, older workers who are losing their skills and motivation as they keep sending out resumes and going to interviews with no response. Something has to be done for those people, especially for minorities whose unemployment rate is double the national rate of 9%."

"I agree. As we were saying last time, letting unemployment fester is not just bad for the economy but it can produce a hurricane of social unrest, as the income gap gets greater and greater. I've been wondering if the White House should be looking at some of the programs Roosevelt used during the depression. For example, the famous WPA, the Work Projects Administration, that hired millions of unemployed workers for public works projects."

"I've been thinking about that as well", I said," but I don't see how Obama could ever get the  House of Representatives, with all its Tea Party members, to support a major Federal initiative like the WPA.  I think that the President should---instead of looking at FDR and the New Deal---be looking at Canada."

"Wow, what did you have the barista slip into your latte! Do you seriously think that anyone in Washington is going to pay any attention to  what my Texas friend calls 'a godless, socialist country'?"

"Hear me out. In the early 1970s in Canada we  had a huge jobs crisis. Canada had had the largest proportion of Post World War II baby boomers in the industrial world. We had mounted crash programs to build thousands of primary and secondary schools and hundreds of colleges and universities to educate them. By the early 1970s, these kids were coming out of the educational pipeline and there weren't enough jobs for them. You have to remember that there had been enormous student unrest in the 1960s, and that in Quebec young people were being attracted to the terrorist Front de Liberation du Quebec. And to make the situation worse, large numbers of housewives  decided that they would like to get jobs outside the home."

"And," the Guru added, "as is the case now in the US, the economy just wasn't generating enough jobs for all those people."

"Exactly! The Government of the day---the Trudeau government--- brought in a range of programs that sopped up a lot of that unemployment until the economy could start to generate enough private sector jobs. The programs---like the New Deal programs---weren't perfect but they helped Canada get safely through a difficult and even dangerous period in our history. It was an impressive success that has had too little attention. To help remedy that, I persuaded a bright graduate student---a few years before my retirement---to work with me on a paper about the steps the Trudeau Government took."

"I remember that period, there was some very creative programming."

"You may be thinking of programs like 'Opportunities for Youth", 'Local Initiatives Program' and some others."

"Yes", I remember the acronyms---Canadians are great creators of acronyms---OFY, LIP etc. Why exactly did the government move to those programs?"

"Well, they had been busy trying all the traditional and  'responsible' ways of soaking up unemployment. They tried using infrastructure projects, but they proved to be slow to get off the ground and the cost per job---usually over a million dollars a job---meant that although they were doing useful things they didn't have a big impact on unemployment. The government also tried paying subsidies to employers to hire workers, and although those programs had some impact, many employers took advantage of the subsidy for people they would have hired anyway.

"So as the economists say, the subsidy programs had low incrementality. People can always figure out how to 'game' the system".

"Right, so the Government decided that it needed to have a program that would get more bang for the buck. It would ask the unemployed young people (it started first with the young) to come up with useful projects and submit a proposal to a local panel that included the Federal Member of Parliament, municipal politicians, service club representatives, Chamber of Commerce officials. Tens of thousands of proposals were submitted and thousands were accepted. The successful groups then had to hire workers, train them and manage the workers and the project budgets."

The Guru nodded, "When you think about it, the Government was taking quite a risk. Kids could've used the funds to grow pot or do god-knows-what."

"There were a few---very few---problems that had to be dealt with but overall the program was a great success. A lot of young people were put to work quickly doing useful things and the annual cost per job was low, perhaps $35,000 in today's money and that included the cost of administration. Later on, the same general approach was used for unemployed adults."

"As I remember that period, a lot of projects had to do with tourism, building hiking trails, snowmobile tracks and so on."

"That's right, but there was an enormous range of project types---from creating small theatre companies to helping housebound seniors with their shopping---all of which were aimed at benefiting the local community. And then as the economy improved and private sector employment picked up, the programs were phased out."

"So", the Guru asked, "you think the US should adopt something similar?"

"I really do. I'm working on a op-ed piece that I plan to submit to the New York Times."

"Aren't you the ambitious little beaver! But where would the White House get the money and how would they get past the Tea Party to get Congressional approval?"

" I'm going to suggest they start with young people and have a hundred billion dollar program that would produce nearly three million jobs. If they can't find that money in their budgets, I would suggest that they do what some economists have been suggesting, that is do a deal with those big businesses that have trillions of dollars in profits hidden off shore to avoid tax. The Government could offer to let them repatriate a portion of that money without paying tax  so long as a substantial chunk goes into a Job Creation Bank. The Bank would finance these community-based projects."

"That makes sense, so long as it is tied to legislation that prevents companies from hiding profits away in the Cayman Islands of this world in the future. But what about getting Tea Party agreement?"

"Have you noticed that the Congressional representatives and senators who voted against 'earmarks' otherwise known as 'pork for the boys back home' are now having trouble finding ways of showing their voters that they are doing something for them.  The funds for the community program I am suggesting would be divided among the 435 congressional districts (with some money for the District of Columbia) based on some criteria including unemployment levels. But every district would get some money. And the representatives would be involved in the approval of projects. I think this approach would win over many of the Tea Party people."

"You've obviously been giving this a lot of thought", the Guru said.

"I have. It is just wasteful and immoral to leave millions of people unemployed while we wait for the economy to recover from what you are calling the 'greedoholic's hangover'. By the way, would you mind looking over my draft op-ed and giving me your views?"

"Sure, but can I give you a bit of advice?"

"Of course---what is it?"

"Don't mention Pierre Trudeau."

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If you have any comments, please leave them below or drop me a line at johnpathunter@gmail.com. The next Icewine Guru posting will appear on September 11th. The next Letter from Virgil posting  will appear on September 4th.