In the wake of the highest unemployment rate in 25 years, The Roosevelt Institute asked historians, economists and other public thinkers to reflect on the lessons of the New Deal and explore new, big ideas for how to get America back to work. TAPPED will be cross-posting the 10-part series with the New Deal 2.0 blog over the course of the next two weeks. In this installment, Pavlina Tcherneva describes how a much poorer country than ours — Argentina — used direct job creation to pull the country out of recession.
What has now become the standard government response to a recession – pump priming – is a gamble and it is time to abandon it as a tool for economic recovery and job growth. It takes too long to produce results and one never knows how much demand the government must pour down a leaky economy to turn it around. It is a risky strategy, which is why President Obama reminded us again on a few days ago that unemployment is a lagging indicator. Yet, there are no good reasons for putting up with high unemployment when we have an effective solution at hand. This is why I add my support to the growing list of those calling for direct job-creation programs.
While policy-makers cling to the astounding belief that the government can neither create jobs, nor find enough useful things for the unemployed to do, a much poorer country with presumably fewer resources and less effective government was able to do it just a few years ago. The country is Argentina, which did not settle for a jobless recovery when its economy plunged in its worst post-War recession; instead, it immediately launched a public employment program, known as the Jefes Plan, to deal with the crisis.
Just like the New Deal in the 30s, the Jefes plan was up and running in only a few months. In January 2002, the jobs program was signed into law as an emergency measure and five months later it began putting 500,000 people to work. Twelve months after that, it had employed 2 million people, or 13% of the labor force. The program offered a part-time, minimum wage public sector job to any unemployed head of household willing to work in a community project. The price tag of the Jefes plan was less than 1 percent of GDP.
More after the jump.
Pavlina R. Tcherneva is an assistant professor of Economics at Franklin and Marshall College and a research scholar at the Levy Economics Institute and the Center for Full Employment and Price Stability.