Great summary of the current political gridlock by Dean Baker and Jared Bernstein:
There are many policies that can reduce inequality, but there is none as straightforward conceptually and as difficult politically as full employment. The basic point is simple: at low rates of unemployment, the demand for labor allows workers at the middle and bottom of the wage distribution to achieve gains in hourly wages, annual hours of work, and thus income.
Levels of unemployment are not the gift or curse of the gods; they are the result of conscious economic policy. The decision to tolerate high rates of unemployment is a choice. It is one that has enormous implications not just for the millions of people who are needlessly unemployed or underemployed but also for tens of millions of workers in the bottom half of the wage distribution whose bargaining power is undermined by high unemployment.
It is pretty obvious that low unemployment would enhance wage growth amongst middle- and low-income workers. But the policies to create low unemployment are not as clear:
- Raising inflation to lower real interest rates would not get strong support in many quarters. It would seem that you are manipulating market signals to dupe business investors to act in a fashion that may not be in their long-term best interest.
- Infrastructure spending is the key to a sound recovery, but beware of raising public debt to fund anything other than productive assets that can generate a market-related return (to service the debt).
- The trade deficit is a big part of any solution. We need to penalize currency manipulators like China (Japan before them) for buying US Treasurys to suppress their exchange rate and undermine US manufacturers.
- Job sharing is not a long-term solution, but it does enable unemployed workers to retain skills that would otherwise be lost.
Overall, an excellent summary of what needs to be done. But it omits one vital piece of the puzzle. How do we get politicians and interest groups to act in the best interest of the country rather than their own?