Dean Baker is co-director of the Center for Economic and Policy Research
Nobel Laureate Paul Krugman and Richard Layard, a distinguished British economist, took the lead last week in drafting a sign-on "Manifesto for Economic Common Sense", condemning the turn toward austerity in many countries. This manifesto seems destined to garner tens or even hundreds of thousands of signatures, including mine.
While the basic logic of the manifesto is solid, there is an important aspect to the argument that is overlooked. We can deal with unemployment every bit as effectively by having people work fewer hours, as we can by increasing demand.
The most important point to realize is that the problem facing wealthy countries at the moment is not that we are poor, as the stern proponents of austerity insist. The problem is that we are wealthy. We have tens of millions of people unemployed precisely because we can meet current demand without needing their labor.
This was the incredible absurdity of the misery that we and other countries endured during the Great Depression, and which Keynes sought to explain in The General Theory. The world did not suddenly turn poor in 1929, following the collapse of the stock market. Our workers had the ability to produce just as many goods and services the day after the collapse as the day before; the problem was that after the crash, there was a lack of demand for these goods and services.
The result of this lack of demand was a decade of double-digit unemployment in the United States. The spending programs of the New Deal helped to alleviate the impact of the downturn, but because of the deficit hawks of that era, Roosevelt never could spend enough to bring the economy back to full employment – at least until the second world war made deficits irrelevant.
This is the same story we face today. The US and European economies were close to full employment in 2007 due to demand created by housing bubbles in the United States and across much of Europe. These bubbles then burst, substantially reducing demand. As Krugman and Layard point out in their statement, one remedy for this loss of demand is for government to fill the gap. If the private sector is not prepared to spend enough to bring the economy to full employment, then the government can engage in deficit spending to make up the shortfall.
But there is another dimension to this issue. It's great for the government to generate demand insofar as it can productively employ people. This means either providing immediate services, like healthcare and education, or in investing in areas that will provide future dividends, such as modernizing the infrastructure or retrofitting buildings to increase their energy efficiency.
However, it can also employ people by encouraging employers to divide work among more workers. There is nothing natural about the length of the average work week or work year and there are, in fact, large variations across countries. The average worker in Germany and the Netherlands puts in 20% fewer hours in a year than the average worker in the United States. This means that if the US adopted Germany's work patterns tomorrow, it would immediately eliminate unemployment.
Of course, it is unrealistic to imagine such large changes occurring overnight, but governments can certainly attempt to encourage employers to shorten workweeks and increase vacation and other paid time-off. In fact, this is the real secret of Germany's post-crisis recovery. Germany's growth has been no better than growth in the United States since the start of the downturn, yet its unemployment rate has fallen by 2.0 percentage points – while unemployment in the United States has risen by almost 4.0 percentage points. The difference is that Germany encourages firms to reduce work hours rather than lay off workers.
Since workers in the United States put in the most hours, the US has the greatest potential gains from shortening work years. But all countries could try to go this path. In the short term, this route keeps people employed and allows them more time to enjoy with their family and friends. Ideally, most of the lost wages will be made up by subsidies from the government. (Remember, the problem is too little demand, not too much. We can afford this.)
In the longer term, workers may find that they prefer more leisure and may be willing to sacrifice some income to have a shorter work week, paid vacation or family leave, or other paid time-off. If that ended up being the case, it would be a lasting benefit from using short-time working as a route for dealing with the downturn.
But even if there are no long-run changes in work patterns, shorter work hours should be on everyone's list as a mechanism to combat unemployment. It is a proven success story with real benefits for workers and the economy.
January 28th, 2014
In the State of the Union address tonight, President Obama is going to call for a national minimum wage of $10.10. Then in their response ...
January 21st, 2014
My New Year's Day op-ed in the New York Times seems to have kickstarted a discussion about how to make Obamacare better. I hope you ...
December 18th, 2013
This morning it was announced by the Library of Congress and the National Film Preservation Board that my first film, 'Roger & Me', has been ...
December 14th, 2013
[View the story "Michael Moore Tweets on Eve of Newtown Anniversay" on Storify]
November 9th, 2013
Click here for this week's full schedule for the State Theatre and Bijou by the Bay in Traverse City, Michigan. The day has arrived. For ...
September 10th, 2013
[View the story "John Kerry's Accidental Diplomacy" on Storify]
July 30th, 2013
Today Bradley Manning was convicted on 20 of 22 counts, including violating the Espionage Act, releasing classified information and disobeying orders. That's the bad news. ...
September 11th, 2010
OpenMike 9/11/10 Michael Moore's daily blog I am opposed to the building of the "mosque" two blocks from Ground Zero. I want it built on ...
December 14th, 2010
Yesterday, in the Westminster Magistrates Court in London, the lawyers for WikiLeaks co-founder Julian Assange presented to the judge a document from me stating that ...
May 12th, 2011
"The Nazis killed tens of MILLIONS. They got a trial. Why? Because we're not like them. We're Americans. We roll different." – Michael Moore in ...
November 22nd, 2011
This past weekend I participated in a four-hour meeting of Occupy Wall Street activists whose job it is to come up with the vision and ...
September 22nd, 2011
I encourage everyone I know to never travel to Georgia, never buy anything made in Georgia, to never do business in Georgia. I will ask ...
December 16th, 2010
Dear Swedish Government: Hi there -- or as you all say, Hallå! You know, all of us here in the U.S. love your country. Your ...
November 2nd, 2010
This letter contains (almost) no criticisms of how the Democrats have brought this day of reckoning upon themselves. That -- and where to go from ...