A smart, zero-cost jobs program tied to the Federal Reserve could revive employment fast—no new taxes, no delays, and no political gridlock, all while feeding Trump’s ego.
Article Summary: When the economy slows, workers shouldn’t have to wait for Congress to act. A permanent, Fed-triggered jobs program could automatically create employment whenever the market needs it—without raising taxes or adding to the deficit. Economists including Alan Blinder and Jared Bernstein say it’s possible, and the political moment might finally be right.
If the economy continues to slow down we might find that the economy again needs some help creating enough jobs for everyone. The economy was in need of that kind of help for quite a while after the crash of 2008 but never got much of it. There is a way to generate those jobs for free. It would take some action by Congress but it’s action that would align with Trump’s ego so it could be possible this time
After the crash the jobs available were far short of the people wanting to work. The Federal Reserve tried to help with that. Their mandate, to try to influence inflation and employment to stay in good ranges, made it their concern. So they bought a lot of bonds from the bond investments market, something they don’t normally do. Without the long explanation, this puts a bunch more money into the market which makes it easily available for companies and local governments to invest in projects. Those, in turn, would require hiring more people, creating more jobs.
The problem was that most of the money the Fed pumped into the economy just sat in banks and didn’t do much to create productivity. The Fed was very frustrated with Congress about this. Why? The analogy commonly given is it’s like pushing on a string. The Fed pushed by making money available but Congress needed to make jobs programs, or fund infrastructure projects, or take other steps that would lead to creating jobs. The Fed pushed the string but needed Congress to pull the other end. Congress didn’t.
The current situation is that Trump was trying to get the Fed to lower interest rates to stimulate the economy even before the Fed decided conditions were right for that. So a Congressional action to take advantage of Fed funds to create jobs would seem to be appealing to Trump as well.
That would normally happen by Congress making standard jobs programs or projects, but there’s an even better option. One that I proposed in correspondence with various high level economists back then in the aftermath of the 2008 crash including with former Labor Secretary Robert Reich, and with Biden’s chief economic advisor, both as vice-president and as president, Jared Bernstein.
Congress could create a jobs program with two special distinctions. One, that it remains in place forever even after a jobs program is no longer needed but it would go dormant when not needed. Two, that it would be funded by a special, separate set of bonds. Ones that only the Fed would be expected to buy. And the Fed would only buy them when they felt the economy needed that stimulation. When the Fed sees the program is no longer needed it stops buying and the program goes dormant. The next time the economy needs that, they start buying those bonds again and the program automatically fires back up. No waiting on Congress to pull the string.
Some economists questioned whether this would be appropriate or within the rules of the Fed but in correspondence with Alan Blinder, who at the time had just finished a stint as vice chairman of the Fed, he said it would be within the rules.
It’s a bold, significant idea that would help working people at times when they need the help but Congress dithers. Now is a rare time when it might be possible to get Congress to establish it. It’s an iron that’s hot and it should be struck now.
I said it was free. When such stimulus is needed, the Fed is going to buy those bonds regardless whether the money freed up gets put to good use or not. Then later when the economy is better the Fed slowly sells off those bonds to get things back to normal. So the jobs program would not cost anything as far as Congress allocating tax money or deficit spending toward it. It just creates a way for the Fed’s normal actions in such circumstances to be much more effective at reaching the goal of helping people. You can hardly get a better deal than that, and if members of Congress have any sense they should love it.
