Bob Pollin: How Do We Get Back to Full Employment?

Bob Pollin, author of Back to Full Employment, begins a series examining whether full employment is possible and how to get there.

TRANSCRIPT:

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.

Bob Pollin, who is a economist and regular contributor to The Real News Network—he’s also founder and codirector of the PERI institute in Amherst, Massachusetts—has a new book out called Back to Full Employment. And without further ado, he joins us to discuss this book. Thanks for joining us, Bob.

ROBERT POLLIN, CODIRECTOR, ECONOMIC POLICY RESEARCH INSTITUTE: Very glad to be on, Paul.

JAY: Alright. So a lot of people are reading the title Back to Full Employment and they’re saying, okay, just when was that? So, obviously, we got to define what you mean by full employment.

POLLIN: Full employment is obviously not an obvious thing to define. In fact, in chapter 1 I talk about problems of definition because first of all we have to talk about full employment at decent jobs. You can’t think about full employment in any old job, because actually that’s very easy to achieve. The worse conditions are, the easier it is to get full employment at lousy jobs or people begging for jobs. So I do discuss that at the beginning, that we’re talking about full employment at decent jobs.Now, what do we mean by full employment at decent jobs? Full employment, in my view, a realistic definition is below 4 percent as officially measured by the government. And why is that my threshold? Why below 4 percent? Because what we’ve seen in the 1960s when we got below 4 percent, and again in the late 1990s when we got below 4 percent, you see a decisive change in the labor market dynamics, such that workers’ wages go up pretty significantly, even in the late 1990s. This is after a generation. From the early 1970s to the mid 1990s, the average wage for nonsupervisory workers was either going down or stagnating. When we got the employment rate below 4 percent in the late 1990s due to—the financial bubble at that time was the dot-com stock market bubble—wages went up, especially for people at the lowest end of the labor market. So that’s really the immediate goal, I think, about something—a definition of full employment.There’s another meaning to the title, and that is that the policy world, the economics profession, needs to get back to thinking about full employment as a policy goal. We’re not even there. At least coming out of World War II and through the ’60s, the entire edifice of government policy, and for that matter the entire edifice of macroeconomics in the economics profession, was focused around the issues of full employment. Of course, there are different definitions, different policy ideas, but full employment was the central idea. We’ve completely abandoned that.

JAY: Well, the idea of full employment—and in your book, in one of the later chapters, you kind of dig into this more—but capitalists have always understood—and, I guess, so have socialists—that high unemployment is good for capitalists, to a certain extent, at least, ’cause it dampens wages. And this, you know, polarity between wages and profits and this dynamic has always meant there needs to be a certain level of unemployment. And I think Milton Friedman—I don’t know if he coined the term or not, this idea of a natural level of unemployment, that they want to control wages, and so they will almost turn a tap one way or the other so that full employment really isn’t their objective, even though legislatively on paper, like the Full Employment Act of 1946, they say it is. But is it really?

POLLIN: No, of course it isn’t. Full employment is definitely a challenge to the dynamics of a labor market under capitalism, precisely as I was saying before, because it gives workers more bargaining power. The idea goes all the way back to Karl Marx. The idea goes back to Marx’s notion of—his term was the reserve army of labor, which is the reserve army of unemployed people. When you have a lot of unemployed people, then if the people that are employed try to bargain up their wages or improve the conditions, the owners can just say, well, if you don’t like it, you know, I’ll just hire those people that don’t have a job; they’d love to have your job. There’s a lot of truth in that. So that is the basic dynamic that Marx described. And Marx himself said, therefore capitalism by its nature requires mass unemployment, requires a reserve army of labor. And we can debate, but I think one of the fundamental critiques that Marx had of capitalism was exactly on this point, that you couldn’t really build a decent society under capitalism, because in order for it to function on behalf of capitalists, you couldn’t have full employment. So when I say a full employment economy, definitely I am talking about changing the dynamics of the economy, about challenging the prerogatives of capitalists, and doing it in a systematic way. So that’s really the nature of the debate around how to get to full employment within the basic structure, still, of a private ownership market economy.

JAY: So part of your thesis is that there have been moments in American history, you know, modern American history, where you have seen low unemployment. Some of that had to do with public policy. And when you say “back to,” you’re partly talking about going back to that, as you say, still within the capitalist system. Is that correct? And then, if that’s true, when are those moments? And give us a bit of that history.

POLLIN: The two periods in the post-World War II era in the United States where you had something close to full employment—so that is, again, below 4 percent—were the late 1960s and the late 1990s, and both experiences are instructive.In the late 1960s you did have a deliberate policy effort to stimulate the economy through macroeconomics, through a tax cut that was started by President Kennedy, continued by President Johnson. At the same time, under Johnson you had very aggressive policies, relative to what we’ve had subsequently, in terms of giving an opportunity for people at the low end of the labor market. So that pushed the economy down to below 4 percent unemployment. And you did see very significant gains in terms of poverty reduction, in terms of decent wages, of wages going up, especially for low-income households. So that’s exactly why I’m looking to full employment to achieve that again. Now, you had roughly the same outcomes in the 1990s when—and this was largely as a result of the financial bubble of the 1990s, which drove a very rapid increase in both private spending, consumption spending, and investment spending. It was a bubble and therefore didn’t last, but for a brief period the unemployment rate officially fell below 4 percent. And yet again you saw wages went up very rapidly, especially for people at the low end, poverty was reduced, and workers did increase their bargaining power.So these are very, very important achievements, and they can be attained within a framework of the existing capitalist economy we have now.

JAY: It could be if they wanted to. The question is: those that have power, you know, do they want to? Like, go back to this Humphrey–Hawkings Act, where they take the Full Employment Act, which was—what, 1946 was it?

POLLIN: Yeah.

JAY: And then they change the objectives. It’s not just now there should be a maximum unemployment rate of 4 percent, but now they also have inflation objectives.

POLLIN: Right.

JAY: And I think you told to me off-camera it’s like really watering down the 1946 act. And this was Hubert Humphrey the great Democrat. And this starts to make the actual policy objective—they say inflation, but we know that’s code for let’s make sure wages don’t get too high.

POLLIN: Right. What happened in the 1970s was that you did start to get higher rates of inflation. The reason you got higher rates of inflation was the oil price increase. In 1973 you had a 400 percent increase in oil prices, and then you had it again in 1979. So that set off this inflationary spiral.The source of the inflation was not workers’ bargaining power. You did get some increase in inflation due to workers having more bargaining power in the late 1960s, but that was not by any means the primary cause of the inflation of the 1970s. So in the book I do talk about the issues of how to control inflation. And there does have to be some concern about inflation control. I don’t deny that.What we do need to do, though, is not what—where we’ve gotten, essentially, now in macroeconomics analysis and policy is really to say, well, look, we can’t really do anything about employment through government policy. We can control inflation, so let’s just stick with inflation and let job creation land wherever it lands. That’s what we got out of, like, 30 years of macroeconomics, which then brought us to the Great Recession, such that orthodox economists, when the Great Recession started, had almost nothing worthwhile to say, because they’d been focused entirely on this issue of inflation control.

JAY: So in the next segment of our interview, we’re going to pursue this discussion, and the question is actually the question Bob raises in chapter 2 of his book, which is: is full employment under capitalism possible? So please join us for the next segment of our series of interviews with Bob Pollin on The Real News Network.