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America needs to solve long-term unemployment crisis

Investing money now is not only humane but will also save on costs and help growth in the future

April 9, 2014 5:00AM ET

The Senate this week voted once again to revive jobless benefits for those out of work six months or more. Not only is such legislation dead on arrival in the House, but some anti-tax representatives absurdly also want to end all jobless benefits as either constitutionally improper or bad for the beneficiaries.

Right now we are short about 5 million jobs compared with the employment levels of the later decades of the 20th century. The number of Americans who want work but have been jobless for more than six months is four times what was in 2000. The 3.8 million long-term unemployed are a huge drag on our economy and a burden to taxpayers, whether or not we restore their unemployment benefits.

Extending unemployment benefits is economically smart as well as humane. It is also what Congress repeatedly did in hard times past, before a minority of voters elected enough anti-government radicals in the House and Senate to block such policies.

However, such an extension is a short-term palliative, not a long-term solution. We need to get serious about long-term unemployment and job growth, addressing an issue our politicians talk about rather than solve. The crucial point to understand about jobs policy is that spending more money now is the best way to reduce the long-term costs of unemployment and to generate long-term returns on this investment.

Welfare for people, not banks

With a robust jobs policy, we can employ many more workers while reducing demand for food stamps and other welfare services, cutting the (already fast-shrinking) federal budget deficit and easing human misery, especially among children whose parents cannot find work.

In 2013, critics of government spending will tell you, we spent $76 billion on the Supplemental Nutrition Assistance Program (SNAP), and nearly 1 in 5 Americans used food stamps at some point during the year. Those are awful numbers.

What gets far less attention, however, is that we spent 110 percent of that amount subsidizing banks, principally the too-big-to-fail banks that precipitated the financial crisis. The Federal Reserve’s subsidies to banks total $83 billion annually, a paper by three International Monetary Fund economists estimated. If you believe the basic theory that government budgets represent public choices, you’re bound to conclude that our government cares more about bank profits than the American people.

Such welfare for banks, though it has produced robust bank profits, comes at a cost. It ravages the savings of retirees, who can at best get interest rates less than half the rate of inflation. Negative real interest rates on savings are not a strategy to promote prudent personal finance.

The harsh reality is that most of our political leaders either support or acquiesce to massive welfare for banks. So let’s accept that reality and extend the philosophy of helping troubled banks to helping people.

In an economy where there are far too many workers chasing far too few jobs, leaders must focus on creating more demand for work — not just any work, but real work that adds value. Instead of food stamps and jobless benefits that just ameliorate human misery, why not get something valuable in return for our money that can eliminate such suffering in the long run?

True, putting 3.8 million long-term unemployed back to work would cost a lot of money. If we put them all in jobs paying the 2012 median wage of $520 a week, the gross pay total would be about $103 billion a year. That figure, however, is less than the $125 billion paid out in 2011 unemployment benefits (which, due to excessive and improper payments, should have been $110 billion, Labor Department reports show).

Number of Americans out of work for 27 weeks or more, by month

The average unemployment benefit is not much more than $300 a week, so at first blush it would cost much more to pay people than to extend jobless benefits. But as in all activity, we need comprehensive accounting of costs and benefits.

Sometimes spending more is smarter. A new house without insulation costs less, but the heating and cooling bills will quickly surpass the savings and continue for as many decades as the building lasts. Skipping insulation is false economy.

Spend another $220 per week to employ a long-term jobless person — $11,440 per year — and we could get lots of work done. And it just so happens that America has a lot of work that needs to be done.

Research and infrastructure

A good chunk of our economy today can be attributed to investments, mostly by taxpayers, in research during the first half of the last century. From the math and physics that put geopositioning satellites in space and make cellphones work to the huge advances in materials science that make engine parts run for thousands of hours to our understanding of genetics, our past R&D spending has paid huge rewards.

But these days, to save a few tax dollars, we have decimated public funding for scientific research. Only about a tenth of top-rated medical research projects get federal funding. Meanwhile China, India and other countries pour money into unlocking the secrets of the universe. Those who make the keys will enjoy the riches. And the riches from life sciences will far surpass those of riches from moving the economy from analog to digital.

Our infrastructure is wasting away. Our roads and bridges are worn out and dangerous. Our airports go into delay mode much too often because we haven’t modernized air traffic control, landing sites and terminals, unlike our economic competitors.

We burden young adults with debt for getting a college education or better, leaving them without the means to buy cars, homes and all the furniture and equipment that goes with them, weakening demand for those products and the workers employed making them.

Our situation is not dire — yet. March was the 49th month in a row with private sector job growth. Since President Barack Obama took office five years ago, the stock market has hit record highs, with the Dow up 131 percent. Corporate profits are at record levels and still climbing.

But we must not let such success blind us to the enormous problem of long-term employment and the need to act now to resolve it.

Putting Americans to work

How would we put America’s 3.8 million long-term unemployed to work? First, we could offer grants to nonprofit employers equal to 90 percent of the pay for each worker, based on current compensation for the same work. Many nonprofits would stretch to find the dime to collect the 90 cents so they could do more with more.

Second, we could ramp up basic research funding as fast as university and other research labs can put people to work. That is the most important step to future jobs.

Third, we could pass a huge infrastructure bill, which would make goods and personal vehicles flow much more smoothly and quickly. We must maintain our roads, bridges, dams and other public furniture or be poorer in the future, so why not start that work now instead of continuing the malign neglect? We need to replace aging subway cars, buses and other equipment as well as build new mass transit systems because of population growth and sprawl.

Yes, these proposals require more government spending. But we are already spending money — in ways that are inefficient and wasteful. These proposals, by contrast, direct money in ways that reduce not only human misery but also its long-term costs, as well as invest in economic growth. The choice is simple: We could spend less money today and hold back our economy today and in the future. Or we could spend more today, spur our economy now and get back a positive return on our investment.

David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, teaches business, tax and property law of the ancient world at the Syracuse University College of Law. He is the best-selling author of “Perfectly Legal,” “Free Lunch” and “The Fine Print” and the editor of the new anthology “Divided: The Perils of Our Growing Inequality.”

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.

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