One piece of such a reemployment system would be wage insurance. Any job loser who takes a new job that pays less than his or her former job would be eligible for 90 percent of the difference, for up to two years. After two years, many workers would have acquired enough on-the-job training to render them sufficiently productive to warrant wages nearly as high as the wages they formerly had on the job they lost. Wage insurance would speed the movement of laid-off workers into new jobs because it would induce them to take jobs that pay less rather than wait for ones that pay as much as the job that was lost. It would thereby save the costs of unemployment benefits and would generate added revenues as reemployed workers pay income taxes earlier than otherwise.
For workers who need additional skills, income support of 90 percent of the former wages would be provided for up to a year while a worker is engaged full-time in approved training or education programs. Longer-term training has been shown to be more effective than short-term, especially when it gives people the basic tools they need to continue learning on the job. If job seekers choose to enroll in programs that prepare them for fields in which labor is likely to be in short supply, such as nursing or teaching, they would receive income support for an additional year of training and education. As participants acquire the kinds of skills that are rewarded in the new economy and fill positions for which there are labor shortages, we could all expect to reap the benefits of this program in the longer term through stronger economic growth, higher tax revenues, and less dependence on social safety nets.
I estimate the total new costs of a reemployment system to be $3 billion a year over and above the $2.35 billion that the federal government now spends on unemployment insurance in an average year. In time, however, the costs of the reemployment system would drop as the skills of the labor force improved and the rate of long-term unemployment declined.
Any remaining shortfall in revenues to cover this program would be made up by a severance tax on profitable corporations that lay off their workers. Under the current system, employers do not pay the social costs of layoffs—including additional unemployment benefits and the extra needs of families in distress. It stands to reason that companies would be less inclined toward layoffs if they had to pay these costs. What is needed is a one-time severance tax on any layoff equal to 75 percent of the full cost of the laid-off worker’s yearly salary, for all workers under the median wage, and 50 percent for all workers above it, up to 200 percent of the median. Such a tax would not only give employers more incentive to keep workers on, but would also help pay for the wage insurance and skill upgrades of the reemployment system.
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School vouchers based on family income. Over the longer term, the best way to boost the earnings of Americans in the bottom half is to improve their education and skills. To that end, spending on public schools should be replaced by vouchers in amounts inversely related to family income that families can cash in at any school meeting certain minimum standards. For example, the $8,000 now spent per child in a particular state would be turned into $14,000 education vouchers for each school-age child in a poor family, and $2,000 vouchers for each child in a very wealthy family.
School vouchers in this progressive form would improve overall school performance by introducing competition into the school system. They would also give lower- and middle-income families more purchasing power in the education market. Schools located in neighborhoods where there are many lower-income families would get immediate infusions of billions of dollars to upgrade their physical plants, buy new textbooks, and hire more and better teachers. Yet under my proposal, such schools would not be able to count on these extra revenues forever. After an initial three years, they would have to compete with other schools that might put those sizable vouchers to even better uses. Some competitors would be organized as independent, nonprofit “charter” schools. Others would be public schools located nearby in adjoining school districts or communities.
I would also expect wealthy suburban school districts to compete vigorously for lower- and middle-income children and the generous vouchers they would bring. These upscale districts would need the money in order to make ends meet; they couldn’t possibly meet their expenses at $2,000 per student. They would even have a financial incentive to arrange vans to transport the children from poorer neighborhoods.
Progressive vouchers should also be made available to families to support early childhood education, providing stimulating care for all children from infancy until they are ready to enter first grade. Few other educational expenditures have so uniformly and consistently shown such positive results. Children in these programs are more likely to graduate from high school, attend college, and be fully employed when adults than are children who have not participated. Children in these programs have been shown to earn more, commit less crime, and experience less teenage pregnancy. A total of $20 billion per year should be devoted to early childhood education. This money would come from the reverse income tax.
College loans linked to subsequent earnings. A large and growing percentage of college students from lower- and middle-income families must finance their education with student loans. This discourages some students from pursuing higher education for fear they won’t be able to get jobs that pay enough. In 2009, about two-thirds of incoming college students expressed concern about their ability to pay for their education. More than half of them had taken out loans. This way of financing higher education imposes an additional burden on students who wish to pursue lower-paying professions like teaching or social work rather than higher-paying professions like business and corporate law. The system thereby robs society of many low-wage professionals whose work is socially useful and desirable.
We need to change the way higher education is financed in America. Tuition should be free at all public colleges and universities. Students who elect to attend a private college or university should be eligible to take out a federal loan. Graduates of public colleges and universities, and borrowers of federal loans, should be required to pay a fixed percentage—say, 10 percent—of their taxable earnings for their first ten years of full-time work into a fund that finances public colleges and universities and provides loans to students attending private colleges and universities. After that, graduates would have no further obligations; loans would be considered fully paid. This way, graduates who pursue low-income occupations such as social work, teaching, or legal services would be subsidized by graduates who pursue high-income occupations including business, finance, and corporate law.
Ten percent is my best estimate, but as long as the payback percentage were set to recoup the full cost of tuition at public universities or the loans for private, the system will not require any additional federal revenues.
Medicare for all. The passage of health care legislation in 2010 represents only the first step toward reform. The next stage should be Medicare for all. The most efficient way to provide all Americans with high-quality health care is to allow everyone to sign up for Medicare and to subsidize the costs for middle-class and lower-income families.
It will become apparent that the 2010 reform cannot adequately contain soaring health care costs. Health care premiums, deductibles, and co-payments will continue to eat up more and more of the paychecks of the middle class. Americans spend more on health care per person than any other nation in the world, and costs are rising faster than inflation. Yet we have the highest infant mortality of all the world’s advanced industrialized nations, and life expectancy in the United States is shorter than in forty other nations, including Jordan and the Cayman Islands. We are the only wealthy nation that does not ensure that all citizens have coverage; as of 2010, some 45 million people were without insurance.
The main reason for the soaring costs and poor results is the way our system is organized. We are the only advanced nation whose citizens largely depend on private, for-profit insurers. The result is complicated, expensive, and inequitable. A study by the Harvard Medica
l School and the Canadian Institute for Health Information shows that over 30 percent of U.S. health care spending—more than $1,000 per person each year—goes for administrative costs. This is nearly twice the percentage of administrative costs in Canada. Medicare’s administrative costs (in the range of 3 percent) are well below such costs of large companies that self-insure (5 to 10 percent of premiums), companies in the small-group market (25 to 27 percent of premiums), and individual insurance (40 percent). In a more “apples to apples” comparison, the Congressional Budget Office has found that administrative costs under Medicare are less than 2 percent of expenditures, compared with 11 percent for private plans under Medicare Advantage, the private-insurance option under Medicare. Allowing Medicare to use its bargaining power with drug companies and health care providers would bring down medical costs even further. Estimates of how much would be saved by extending Medicare to cover the entire population range from $58 billion to $400 billion a year, enough to subsidize coverage for many if not all Americans who need it and constrain the costs of co-payments and premiums for everyone else, without busting the federal budget or imposing higher taxes.
Making Medicare available to all Americans is not a very large step when you consider that by 2010, even before the new legislation was implemented, almost half of Americans received some form of public health care (older Americans through Medicare; poorer Americans through Medicaid and the Children’s Health Insurance Program; veterans through the Veterans Health Administration; government workers as well as members of Congress through a health plan open to federal employees). Nor is it a pie-in-the-sky idea politically. I believe most Americans would support it. They supported the so-called public option. In a poll conducted for NBC News and The Wall Street Journal in June 2009, 76 percent of Americans said it was either “extremely” or “quite” important to “give people a choice of both a public plan administered by the federal government and a private plan for their health insurance.” Once the 2010 health bill is implemented and its costs become apparent, the public will be readier to support Medicare for all.
Public goods. There should be a sizable increase in public goods such as public transportation, public parks and recreational facilities, and public museums and libraries. And they should be free of charge to users (the trend in recent years toward “user fees” should be reversed). Such public goods improve the quality of life for many people who cannot afford the equivalent private goods—their own cars, manicured gardens, art collections, books, and health club memberships, for example. In this way, public goods partly make up for stagnant or declining wages.
Public goods typically do not use up lots of scarce resources or cause as much environmental damage as their private equivalents, and they generate jobs and add to overall demand in the economy. Making them free maximizes these societal benefits. For instance, an expanded system of free public transportation, including high-speed rail, would dramatically reduce traffic congestion—estimated to cost Americans more than $85 billion a year in wasted hours and gas—and cut carbon emissions. The benefits are easily worth the cost.
Money out of politics. Finally, and not least, we are all painfully aware of the failures of our democracy. As inequality has widened, money flowing from large corporations, Wall Street, and their executives and traders has increasingly distorted political decision making. We need strong campaign-finance laws, more generous public financing of elections (matching dollar for dollar whatever an opponent raises privately), stricter limits on campaign contributions, and limits on so-called issue advertising, which is partisan advertising under a different name. Recent Supreme Court decisions protect some of these activities as forms of free speech under the First Amendment to the Constitution. Ultimately, these decisions must be overturned.
In the meantime, we should require that all political contributions go through “blind trusts” so that no candidate can ever know who contributed what. Political corruption occurs when officials favor certain parties over others because the favored parties have provided, or are likely to provide, generous campaign donations. The money is the quid pro quo for the political favor. A law requiring that all political contributions go through blind trusts that would maintain the anonymity of donors (with criminal penalties for disclosure) would not prevent any person or group from claiming they made or will make a generous donation. It is likely that the number of persons and groups making such claims would increase dramatically, because officials will never be able to check on the veracity of such claims. That is the point. The inability to check will undermine the credibility of all such claims, thereby making it impossible for any person or group to “collect” on their donation by getting favorable treatment. The quid would be severed from the quo.
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How It Could Get Done
This is not an unrealistic agenda. It is practical and doable. And given how concentrated income and wealth have become in America, it is commonsensical. It would begin to move the pendulum back toward more shared prosperity.
But to implement it would require cooperation at all levels of society. Though that may seem unlikely now, a major crisis could well unite those at the grass roots who seek positive reform rather than “kill the cow” reactionary politics with the leaders of labor, big business, and Wall Street. Theodore Roosevelt and Woodrow Wilson discovered this in the first decade of the twentieth century as they struggled to implement reforms with the help of progressive organizations at the state and local levels. They were marginally successful, but the economic and political crises of their era were not large enough to compel major reform on the national level. That had to await Franklin D. Roosevelt, who presided over an economic crisis so perilous it hurled the nation toward the New Deal.
Barack Obama discovered much the same phenomenon in the first months of his administration, when the economy teetered on the brink. But with the immediate crisis contained, political support for large-scale reform slackened. Obama might still have succeeded if he had framed the challenge accurately. But in reassuring the public that jobs would return, he missed a key opportunity to expose the longer-term trend and its dangers. By averting the immediate financial crisis and then claiming that the economy was on the mend, he left us with a diffuse set of ongoing economic problems that seemed unrelated and inexplicable—rather like the citizens of a village whose fire chief succeeds in protecting the biggest office buildings but leaves smaller fires simmering all over town. Without a broad understanding of how one problem connects to another, the public can neither see nor react to the overall conflagration. It feels the heat coming from many places—housing foreclosures, continued high unemployment, lower earnings, less economic security, widening inequality, soaring pay on Wall Street and in executive suites—but is bewildered, anxious, and, in many cases, angry.
Legislation to improve America’s health care system illustrates the paradox. Initially, the public was strongly supportive. But the president and Democratic leaders failed to link the reform of health care to the long-term economic crisis faced by most Americans, and to a broader agenda of getting the nation back to more widely shared prosperity. As unemployment rose through 2009, the public understandably focused its attention on the losses of jobs and earnings, and threats to their homes and savings. Without a larger framework, fixing health care appeared tangential to these more immediate problems. Consequently, the broad public was not as actively supportive of health care reform as it needed to be in order to weaken the hold of vested interests. As I’ve pointed out, in order to gain passage, the White House and Democratic leaders brokered deals with Big Pharma and private health insurers, who demanded in return that any so-called reform improve their profitability. The resulting legislation does not adequately control future costs, and it will require that Americans pay more for their health insurance than they would have had the deals not been made.
Much the same occurred with efforts to reform the financial system. The White House and Democratic leaders could have des
cribed those efforts as means to overhaul economic institutions that bestow outsized rewards on a relative few, while imposing extraordinary costs and risks on almost everyone else. Instead, they defined the goal narrowly, as reducing risks to the financial system created by particular practices on Wall Street. The solution thereby shriveled to a set of technical fixes for how the Street should conduct its business. Once the worst of the financial crisis seemed to have passed, the public basically lost interest.
In these respects, the Obama administration postponed the day of economic reckoning. Now that middle-class coping mechanisms are exhausted, though, that postponement cannot last for long. Americans need to understand what has happened, and why. And they must understand the real choice ahead.
An aftershock in the form of another deep recession might be enough to spur reform. But a slower aftershock—characterized by several years of high unemployment, languishing or declining wages, and slow growth—may not be enough to upend vested interests “that can too readily hold on to their power and increasingly anachronistic views,” as Marriner Eccles described them in the 1920s and early 1930s. A slower aftershock is more likely to unleash a political backlash as, over time, more Americans grow skeptical that established institutions will respond to their needs. Yet even under these circumstances, reform could still be galvanized. The early stirring of backlash may be enough to convince established interests that reform is necessary in order to forestall worse repercussions.
Sooner or later, the chief executives of America’s largest corporations and Wall Street banks will become concerned about the lackluster economy. Their firms cannot generate profits, year after year, if the American middle class cannot afford to purchase the products and services these firms offer. None but the most globalized American firms will be able to gain enough from foreign markets to make up for the shortfall at home.
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