The Renewal Deal

What Congress can do to fight unemployment

Full Faith and Credit

Last month, Ben Bernanke told the Brookings Institution that the recession “is very likely over.” Technically, he is correct: GDP will grow this quarter, and the International Monetary Fund projects a 1.5 percent increase next year. Yet unemployment reached 9.8 percent last month, a 25-year high, and will likely continue climbing. This is to be expected, as joblessness typically rises for nearly 18 months after GDP growth turns positive. Due to this recession’s severity, most economists expect unemployment to return to pre-recession levels in three to five years. As Bernanke acknowledges, it doesn’t feel like the end of a recession for many Americans.

Republicans have used this news to prematurely declare the American Reinvestment and Recovery Act a failure. This is intellectually dishonest, given that three-quarters of it has not yet been spent. According to the Council of Economic Advisors, even the fraction paid out so far added two to three percent to second-quarter GDP growth and created or saved hundreds of thousands of jobs (although the exact number is up for debate). Clearly, joblessness would be higher today without the stimulus.

Regardless, Congress recognizes that further action is necessary to combat unemployment. Proposals under debate include increased aid to states, a business tax credit for new hiring, and extended unemployment benefits. These measures, while helpful, constitute a Band-Aid response to a much larger problem. Given that many job losses are concentrated in construction and manufacturing, a superior plan would directly stimulate demand for raw materials and finished products. With America in need of profound investment in 21st-century infrastructure, and so much labor currently on the sidelines, the obvious solution would fund a massive transportation and school-construction program and provide greater support for green energy endeavors. As a presidential candidate, Barack Obama promised to support these initiatives; now is the time to transform rhetoric into action.

America has outgrown its 1950s-era transportation network—the crumbling Tappan Zee Bridge in New York and L.A. rush-hour traffic serve as living proof. Congressman Jim Oberstar, chairman of the House Transportation and Infrastructure Committee, has proposed legislation that would spend $500 billion over six years on highway, mass-transit, and high-speed-rail construction. The bill will create an estimated six million jobs—twice as much as the stimulus can under the most optimistic projections. Unfortunately, President Obama plans to table this bill until 2011 in an effort to save political capital for health-care and climate legislation. While the president’s motives are understandable, stopgap measures are unacceptable when a badly needed long-term vision is on the table.

Studies estimate that bringing public schools into a state of good repair will cost hundreds of billions of dollars. States and school districts, which typically finance construction, cannot afford such an expense without federal funding, especially during a recession. The stimulus paid out $44 billion to school districts, but many are spending this funding on preventing teacher layoffs and cutbacks rather than renovation. Two bills that passed the House this year would provide $4 to $6 billion for school construction and modernization. Funding that will create construction jobs while improving the quality of education (a key determinant of long-term economic growth) is worthy of Senate passage.

Though America has a growing hunger for green energy, it is lagging in the race to build large manufacturers of solar panels, wind turbines, and lithium-ion batteries. This means it is also failing to create “green-collar jobs” with the potential to reverse America’s manufacturing decline. In contrast, Germany, China, and Spain are home to global leaders in clean-energy manufacturing, not to mention thousands of green jobs. These companies were supported by long-term price guarantees for green power, national mandates on utilities to generate renewable energy, and generous investment subsidies. To achieve similar results, we must emulate our competitors’ policies.

Franklin D. Roosevelt, Class of 1904, used public-works construction to curb unemployment and fight the Depression. But these New Deal projects also boosted long-run growth by creating infrastructure still in use today, like the Grand Coulee Dam and LaGuardia Airport. We now find ourselves in a similar situation, with millions seeking employment and a nation in need of new schools, highways, and industries. Under FDR, the Three Rs stood for “relief, recovery, reform.” To successfully reduce unemployment while laying a foundation for tomorrow’s economic growth, President Obama’s economic policy must include a fourth R: renewal.

Anthony P. Dedousis ’11 is an economics concentrator in Leverett House. His column appears on alternate Thursdays.