By Dean Baker
The United States has more than 15 million people unemployed. This is not their fault. It is the fault of really bad policy decisions by people who get paid more than almost all of the unemployed ever did or ever will. The failure of economic policymakers to recognize and attack an $8 trillion housing bubble led to the downturn. The continuing failure of economic policymakers to think creatively is why 15 million people remain unemployed.
The basic problem of unemployment is in fact a very simple one; we don't have enough demand in the economy. The collapse of bubbles in both residential and nonresidential construction led to a falloff in annual construction of close to $700 billion. The disappearance of more than $6 trillion in housing bubble wealth has forced consumers to pare consumption by approximately $500 billion a year. This creates a total shortfall in annual demand of $1.2 trillion.
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If politics makes it impossible to increase the demand for labor, an alternative way to create jobs is through decreasing the supply of labor. Specifically, employers can be given an incentive to cut the hours of their current workforce, while keeping their pay constant. This should then cause them to hire more workers. This is not an untested idea. Germany has used work sharing tax credits to keep its unemployment rate from rising in this downturn, even though its recession has been more severe than ours.
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It is absolutely unacceptable to have 15 million people unemployed just because the people who call the shots are too dumb to figure out how to get them back to work. We got into this mess because the people on top didn't know what they were doing. We shouldn't have to stay here because they still can't figure things out.
In Germany, they are experiencing the recession through short workweeks and longer vacations, rather than mass unemployment. We should be doing the same here.