Share on Google Plus Share on Twitter Share on Facebook Share on LinkedIn Share on PInterest Share on Fark! Share on Reddit 1 Share on StumbleUpon Tell A Friend (1 Shares)  
Printer Friendly Page Save As Favorite View Favorites View Stats   5 comments

Exclusive to OpEdNews:
OpEdNews Op Eds

Job Creation Requires a Multitude of Approaches; Not Simply Relying on the Fed

By (about the author)     Permalink       (Page 1 of 1 pages)
Related Topic(s): ; ; , Add Tags Add to My Group(s)

Must Read 1   Supported 1   Valuable 1  
View Ratings | Rate It

opednews.com Headlined to H3 8/5/12

Appearing before Congress, Fed Chair Ben Bernacke predicted that the economy would not improve unless Congress addressed looming spending cuts and the expected increase in taxes. In response, Senator Charles Schumer of New York said that because Congress was unable to act it was the Fed's job to stimulate the economy. Therefore, the Fed should get to work. Only a couple of weeks later the Fed announced that it would be offering another stimulus package. And yet it is this passing the buck that is really the problem. For too long Congress and the White House have relied on the Fed to stimulate the economy through monetarism because it effectively absolves the political institutions of responsibility that typically accompanies fiscal policy. Still, each approach by itself is limited, and what is needed is the two together along with another tool, an incomes policy.

Monetary policy is essentially a bottom down approach that assumes that if interest rates can be lowered enough, investment will be stimulated and jobs created. All the Fed can do at the moment is get more money into the economy either through lowering interest rates again and more quantitative easing. Interest rates are already at their lowest level in years, and so far to little effect. The problem with the monetary approach is that it rests on faulty assumptions. Pumping more money into the economy, in and of itself, will not create jobs. Job creation requires a more grassroots approach. In order for there to be jobs creation, there needs to be aggregate demand for goods and services. Therefore, it matters not how much interest rates are lowered. If there is insufficient aggregate demand because individuals lack the financial wherewithal to demand goods and services, nothing is going to happen. To a certain extent, fiscal policy can help in this regard. By lowering taxes, individuals will have more money in their hands and will be able to demand more. But the current debate about extending the Bush era tax cuts is not really a serious discussion of fiscal policy. Extending the tax cuts is not the same as putting more money in people's pockets; rather it simply prevents more money from being taken out of people's pockets. What is needed is lowering taxes in conjunction with monetary policy, which would also require serious tax reform. But this too isn't enough.

Individuals need to have incomes that support their demand for goods and services in the aggregate. This would require some type of incomes policy in conjunction with monetary and fiscal policy. Milton Friedman, for instance, assumed that wages would rise, but believed that monetary policy would also serve as a means of maintaining wage restraint. While advocating roughly a three percent steady growth in the money supply to maintain stability, it was also assumed that money wages would also be constrained. In short, wages would increase to match productivity (which was roughly rising at three percent per year overall), but faster wage growth would be harder to achieve. His formula simply assumed wage growth. But a more formal policy to ensure wage growth might be necessary. The reason is actually quite simple: it really does not matter how many jobs might be created ether through tax reductions or lowering interest rates if people's incomes fail to keep up with inflation. It is true that inflation is at an all time low, but wages have also been stagnant for more than three decades. This was in part compensated for by people's reliance on credit cards. With the financial meltdown, however, this too has become more difficult.

Free market purists will, of course, claim that it is wage rigidity that is the problem, and that a policy that prevents flexibility will cost jobs. The issue, however, is not wage rigidity and tax rates. It is insufficient demand for goods and services because of insufficient incomes. Assuming that an incomes policy is a set of labor market institutions for the purpose of bolstering wages, it is critical because without it the erosion in the value of workers' wages means that they are unable to continue demanding goods and services. An economy, after all, needs to be built from the bottom-up; not the top-down. At the end of the day all institutions must work together. This requires coordination; not passing the buck as Congress attempted to do in response to Bernacke's bad news.

 

Take action -- click here to contact your local newspaper or congress people:
Let's have a fresh approach to jobs creation

Click here to see the most recent messages sent to congressional reps and local newspapers

Oren Levin-Waldman is Professor of Public Policy and Public Administration at Metropolitan College of New York. He is the author of Wage Policy, Income Distribution, and Democratic Theory (Routledge 2011)

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon

Go To Commenting
The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact Author Contact Editor View Authors' Articles
Related Topic(s): ; ; , Add Tags

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Raising the Minimum Wage is a Way to Help the Middle Class

Addressing Income Inequality through a Credible Wage Policy

Job Creation Requires a Multitude of Approaches; Not Simply Relying on the Fed

Comments

The time limit for entering new comments on this article has expired.

This limit can be removed. Our paid membership program is designed to give you many benefits, such as removing this time limit. To learn more, please click here.

Comments: Expand   Shrink   Hide  
4 people are discussing this page, with 5 comments
To view all comments:
Expand Comments
(Or you can set your preferences to show all comments, always)

Jobs creation requires more than simply lowering i... by Oren M. Levin-Waldman on Sunday, Aug 5, 2012 at 4:01:18 AM
Agree wholeheartedly.... by BFalcon on Sunday, Aug 5, 2012 at 5:29:56 PM
Wouldn't it be good to allow any worker who wishes... by molly cruz on Monday, Aug 6, 2012 at 2:06:40 AM
... by David Chester on Monday, Aug 6, 2012 at 3:57:16 AM
Suppose that instead of using money, our soci... by David Chester on Monday, Aug 6, 2012 at 3:56:08 AM