Time for an adult conversation

 “Let’s cut deficits!”

“Let’s cut taxes!”

“Let’s pay off the debt!”

“Let’s cut spending programs and entitlements!”

“Let’s stop big government!”

The statements above reflect fundamental tenets of the new ‘Tea Party’ movement sweeping into Congress come January 2011. However, none of these things will do much to spur economic activity and help aid unemployment—the major problem facing our society.

If you give money back to the uber-rich, you will not increase economic output. Policy analyst Andrew Fieldhouse questions why we would give tax cuts to “a group whose incomes have seen the strongest growth over recent decades and who will put relatively little of it back into the economy.” As he notes, there are better ways to spend this money.

If you cut deficits and debts, in the short-term, you will severely limit the government’s ability to step in and act as a “consumer of last resort.” You think if the government didn’t pump in bailout and stimulus funds, we would be better off now? We fought off a crisis of a catastrophic magnitude with an intensity and creativity of which many of us will never fully understand or appreciate.

If you cut spending and entitlements, you will put people already on the bottom of America’s socioeconomic ladder, into poverty and sickness. There are some among us who believe that many workers are jobless because they are lazy and riding on the backs of other hard-working wage earners.

In reality, most people are unemployed not because of a lack of skill or initiative, but because of a simple lack of jobs. In fact, a Rutgers University survey of workers who were unemployed in August 2009 showed that a staggering 80% of them were still without jobs six months later.

Unemployment benefits are actually good policy. Why? Because EVERY dollar paid out is usually spent immediately on food and other necessities. Compare that to the dynamic of handing out $100,000 checks to America’s wealthiest versus the weekly unemployment check for $300. What do you think would get spent faster? If you really do not believe people are hurting, check out this time-lapsed welfare map that shows the 60% increase in food stamp usage since 2007.

And regarding big government? Imagine if the Obama administration failed to jump in and save General Motors. According to an analysis by International Economist Robert Scott, the U.S. investment in GM prevented the failure of a major American auto maker, which could have resulted in one million to three million lost jobs. As the Economic Policy Institute noted, “considering the impact on government budgets of such a massive shutdown and such widespread unemployment, Scott wrote that the federal government made a savvy investment. He calculated that the investment saved federal, state, and local governments between $94 billion and $515 billion.”

So then, I ask, how do we fix unemployment? The answer is, most likely to the cringe of the GOP: green technology.

We’ve seen from tragic oil spills and mine explosions that there is a serious cost of using fossil fuels—to human lives and our environment. Green technology offers America an industry with tremendous growth potential and with great possibilities of fundamentally changing the way we live for the better.

The US government must step in and invest in this new industry with tax incentives, capital investments, and rigorous policy initiatives to help get the ball rolling. If we can lead the world in green technology, we will be at the helm of the next major economic powerhouse.

The folks most affected by the recession have been working class people – in construction (previously home and office builders) or manufacturing. These jobs have either been out-sourced or destroyed by the loss of consumer demand and the difficulty in getting credit to fund capital investments. Less consumers/capital investments = less things sold = less things made = less workers employed to make them.

According to a recent letter from the Federal Reserve Bank of San Francisco, “[C]onstruction employment declined nearly 25% from the start of the recession through the end of 2009 . . .[s]imilar to past recessions, job losses have been concentrated in cyclically sensitive sectors such as construction and manufacturing.”

Futhermore, the seasonally adjusted unemployment rate for construction workers “has been hovering around 20% in recent months” compared “with a more typical rate from 2003 to 2006 of about 7 to 8%.” This represents about 1.25 million more unemployed construction workers, and while many “of these workers are likely to be employable in other sectors as the economy improves…a large share may not be.”

But when the economy isn’t improving, how do we put these 1.25 million construction workers back to work? Currently, the economy is only growing at about 2% a year. In order to affect the near 10% unemployment number, we would need a growth rate of at least 5%. Construction – both residential and commercial – is dead. Banks aren’t loaning money to companies and individuals, which is slowing down the rate of recovery. And don’t expect it to change any time soon. With so many bad assets on their balance sheets related to the housing bubble and mortgage mess, it will probably takes years for banks to resume normal leading.

If we sit back and do nothing, employment may not come back till 2013 or even later, some say 2018. In previous recessions, the Federal Reserve could cut interest rates and spur economic activity by making loans cheaper for companies and individuals. However, short-term interest rates are near zero and have been near zero since the fall of 2008. So the Fed’s back up plan? Money Voodoo. Right now, the Federal Reserve is planning a second round of “quantitative easing.” Basically, the Federal Reserve will print $900 billion dollars and use it to buy treasury bonds. Who sells treasury bonds? The US government. So, the “bank of the government,” is going to print money and then use it to buy bonds, which are basically “I-owe-you’s.” They are doing this because they can’t cut interest rates. This is monetary policy geared to helping supply more money to the markets.

However, the US government is not the only owner of treasury bonds. Banks, financial institutions, insurance firms, foreign governments, and even individuals own T-Bonds. By buying these bonds, the Federal Reserve will pump money into the system, onto bank and company balance sheets, making them able to have money to do stuff. But the catch is they might not do anything.

For example, if you are JP Morgan Chase & Co and you have $176 billion dollars in bad mortgages and the Federal Reserve buys treasury bonds from you, giving you say $100 billion in “cash,” what do you think you would do? Do you loan that money out or do you hold on to it to make sure you survive your credit losses?

To me that doesn’t sound like the best investment. Wouldn’t it be better for the federal government to invest that $600 billion dollars into building a new economic powerhouse to drive the economy for the next 5-10-15 years? Or to take the money pegged for tax cuts for the wealthiest and invest it in green technology? This is the type of infrastructure we need to be building. For all of the unemployed construction and manufacturing workers to help build the factories, the plants, the roads to the offices, etc. There’s a multiplier effect that would take place: more people working = more tax revenue for the government and more people buying things = better economy overall. And we’re investing in the future! This is a long-term solution to MANY of our problems.

In a recent blog post about the sunken position of newly minted college graduates (a must read), the article notes a recent paper on long-term investments in rebuilding a green energy base by Robert Pollin and Dean Baker. According to the report, if “the military and fossil fuel industries accounted for roughly $1.2 trillion in total U.S. spending in 2008, this means that taking, say, 25 percent of their total and distributing it proportionally to traditional infrastructure and clean energy investments would generate a net increase of roughly 2.5 million jobs—enough to reduce U.S. unemployment, as of 2008, by more than 1.5 percentage points.”

Sounds like a plan that could be crazy enough to work. To put Americans back to work. To strengthen the economy, create a better world, and put America back at the forefront of innovation.

So the question I have for the newly elected Congress: do you care? What will you be fighting for in 2011? Will it be repealing the healthcare law, cutting taxes for the top 1-2%? Will it be making sure Barack Obama is a one-term president? Will you allow unemployment benefits to lapse so that people can’t feed their families? Will you change the American landscape, will you fight for a better future for these people you represent?

My advice to you is beware of logical fallacies and intellectual dishonesty. You can’t cut taxes for the wealthiest AND cut deficits and debt. You can’t cut entitlements and spending programs AND help Americans do better economically. You can’t lead by obstructing or fight for the working class by protecting big business.

We are ready for the “adult” conversation, but only if you are too. Let’s take our government back, yes. But let’s be sure to do it’s for the American people and not the corporate elite. After all, these unemployed construction and manufacturing workers are the ones behind this Tea Party rage, behind the anger at big government and bailouts. These are the people who elected you. Please help them.