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People Must Live By Work Book Club: Week 7 (Chapter 6)

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Last week, the online book club of my new book (available to the reading public here and here) discussed how the War on Poverty came around on direct job creation too late to have an impact on the political process.

This week, I’m going to look at the last best opportunity for direct job creation in the 20th century: what Jefferson Cowie calls the “New Deal that Never Happened” of the Carter Administration.

Summary:

“Big bangs” in economic and social policy come along quite rarely, because in the veto-point-rich American political system, they require significant and simultaneous majorities in the House and Senate as well as control of the White House.  After the 1976 elections, Democrats had the trifecta: a filibuster-proof 61 seats in the Senate, a majority of seventy four in the House, and Jimmy Carter had won back the Presidency for the first time since LBJ. Unlike in the previous post-1964 trifecta that gave birth to the War on Poverty, in this case both Congressional Democrats and Democratic nominee had endorsed direct job creation in the 1976 Democratic Party Platform.

So why did direct job creation fail, not once but twice?

In order to answer that, I have to explain some background. In the wake of the 1973-5 recession, direct job creation had come back into government with the Comprehensive Employment and Training Act, which created 750,000 jobs and managed to endure for ten years. While imperfect both in scale (some 2.3 million people had lost their jobs and unemployment hit 9%) and scope (the program’s decentralized nature led to high substitution rates and conflicts between local governments and public sector unions), CETA had a profound impact on the Labor Department. During the 1960s, the Labor Department had had many policy priorities; but by the mid-70s, direct job creation was the single largest function of the department. Thus, for the first time since the WPA, there was a Federal agency with both the capacity and the desire to run a national DJC program.

At the same time, however, Guaranteed Minimum Incomes had emerged as a major competitor on issues of poverty and inequality, gaining many adherents within both the Office of Economic Opportunity and the Department of Health, Education, and Welfare, as well as a vibrant social movement acting in support (the National Welfare Rights Organization). The breakdown of the Family Assistance Plan in 1970 and 1972 over conflicts between the left and right flanks of its coalition (or for that matter, the program’s broad unpopularity) did little to dampen their enthusiasm for another bite at the apple when the Carter Administration came to power.

While this potential clash hung in the firmament, in Congress a compromise was being reached. Augustus Hawkins, a New Deal Democrat from Watts who founded the Congressional Black Caucus and wrote Title VII of the Civil Rights Act, had been pushing a bill that would establish the right to a job, borrowing the administrative structure of the Swedish beredskaparbete system (where local planning councils designed model projects, which would be activated by the national government to achieve employment targets, who would then order employment offices to hire the unemployed to work on the selected projects) and adding onto it the individual’s right to sue in court for enforcement form the Civil Rights and Voting Rights Act. Meanwhile, former Democratic nominee for president Hubert Humphrey was back in the U.S Senate, and (with the assistance of his long-time supporter Leon Keyserling) had been pushing a bill that would add teeth to the 1946 Employment Act by adding binding numerical goals for unemployment into the Federal budget.

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Augustus Hawkins with MLK Jr.

Hawkins was initially suspicious of Humphrey Keyserling’s fixation on economic planning and process, whereas Humphrey Keyserling was still a proponent of using broad Keynesian stimulus over WPA-style direct job creation and tried his level best to persuade Hawkins to drop it from the bill. Eventually, however, a compromise was reached which combined the planning and targets of the Humphrey bill with the direct job creation measures of the Hawkins bill (albeit with DJC now seen as a backstop rather than the first-mover).

Given the pedigree of the co-sponsors, the Humphrey-Hawkins bill was highly attractive to Democratic Congressional leadership like Tip O’Neill, who wanted to get Congress to pass the bill and force the fiscal hawk Gerald Ford to veto it, allowing Democrats to run in 1976 as the populist party of jobs for all. With leadership support, the bill went forward into highly visible hearings…and this is where ideas and intellectuals come to the fore, because the movers and shakers in these hearings would be economists.

The 1970s were a bad time to be a Keynesian economist; the arrival of “stagflation” (persistent high inflation at the same time as high unemployment) at the same time that the Phillips Curve (which had posited a stable relationship between inflation and unemployment, such that policymakers could make tradeoffs between the two) was increasingly under attack by neoclassical economists like Milton Friedman left many of them groping in the dark for explanations for how the impossible had happened.

Thus, when the Keynesian academy was called to testify on the Humphrey-Hawkins Bill of 1976 they split badly, with major figures like Johnson Administration Budget Director Charles Schultze taking the position that any lowering of the unemployment rate would cause hyper-inflation, future Labor Secretary Ray Marshall arguing that direct job creation could produce full employment without inflation, Leon Keyserling strenuously arguing that the Phillips Curve was intellectually bankrupt and that unemployment was in fact the cause of rather than the cure for inflation, nominal supporters like Alice Rivlin of the CBO and John Kenneth Galbraith taking the position that no one had any idea what rate of unemployment would cause inflation (and thus that price controls would be necessary for a job guarantee to work), and neoconservative economists like Arthur Laffer and Alan Greenspan arguing that Keynesianism itself was a religion that had failed.

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In the wake of this bitter intellectual conflict, Congress was unwilling to embrace anything so unexpectedly controversial. So they resolved to delay and take up the measure after the 1976 presidential election…which means we now have to talk about Jimmy Carter. As an outsider presidential candidate, Carter had little connection to either side in the fight over the Humphrey-Hawkins Act, but as a white southerner who needed support from labor unions and African-American voters in the North to win the presidency, he endorsed the bill in the same lukewarm way that he’d embraced Teddy Kennedy’s single-payer health care bill.

When he got to the White House, however, Carter announced that his administration would draft their own version of a job guarantee bill, one that would tackle working poverty and welfare reform as well. This ambitious proposal was unimaginatively named the Program for Better Jobs and Income:

On the face of it, Better Jobs and Income presented a promising solution to the persistent conflict over welfare reform and unemployment. At a time when high inflation and unemployment blurred the lines between the unemployed and the working poor, the Democratic party was mired in persistent conflict over welfare policy. PBJI would give work to the unemployed poor and both work and childcare to those with young children, both acceding to and outflanking traditional views about the necessity of work, “worthiness,” and motherhood. An expanded Earned Income Tax Credit meant to lift the working poor out of poverty and above welfare recipients would enter the scene. The poor with children younger than 12 would, for the first time, be guaranteed a national, unified, minimum cash benefit above the poverty line, as part of a bid to win support from the National Welfare Rights Organization and their Congressional allies.122

…In this conflict, the best weapons that the two sides could call on were the political promises made by Carter himself. During the campaign, Jimmy Carter had promised to reform the welfare system (and had endorsed the Humphrey-Hawkins Act), but he had also promised to keep the deficit below $30 billion.138 The economic departments succeeded in portraying any additional funding for either incomes or jobs as a breach of the second promise, and Carter was especially susceptible to arguments that stressed fiscal discipline. A month after the Program for Better Jobs and Income was proposed, President Carter told Secretary Califano “I want you to take all the money that is now being spent on welfare programs and redesign the whole system using the same amount of money.” When Califano replied that more money would still be required even in a total redesign, the President exploded, saying “are you telling me there is no way to improve the present welfare system except by spending billions of dollars? In that case, to hell with it! We’re wasting our time.”139 It was a smashing victory for the core economic departments.

In the end, the compromise pleased no one. HEW and Labor lamented alongside Congressional liberals. The bill now provided for only 1.4 million jobs (only 750,000 of which were new) at minimum wage. Welfare payments were capped well below the poverty line – which meant little fiscal relief for states in the Northeast and Midwest who provided above-poverty benefits out of their own coffers. Senator Daniel Patrick Moynihan (D-NY) flatly told Carter Administration officials lobbying for his support that Carter’s insistence at keeping the cost of the package down had cost them his vote. “I would like you to go back to the Director of Management and Budget when you next see him. He has sent you up here to make bricks without straw and it is not easy to do.”140 The economic departments and conservatives in Congress were annoyed that even this limited version would still cost $17.4 billion more than current welfare spending.141 As Senator Carl Curtis (R-NE) complained, “working men and women across America want fewer people on welfare, not millions more.”142

In the wake of the collapse of the PBJI, the well was thoroughly poisoned for the Humphrey-Hawkins Act. While Labor Secretary Ray Marshall saw Humphrey-Hawkins as a way to salvage his department’s DJC proposals, CEA Chair Charles Schultze was in no mood to accept a bill which he had testified against the year before after he had just seen off the misbegotten PBJI, and HEW Secretary Joe Califano saw no incentive to invest any political capital in an effort that no longer had any space for Guaranteed Minimum Incomes. And then in one of those administrative decisions that are so uniquely Carteresque, the President appointed Charles Schultze to be the administration’s lead negotiator with Congressman Hawkins and Senator Humphrey.

What ensued was months of tortuous negotiations, as Schultze for the administration and Keyserling for Humphrey and Hawkins argued not just over whether the bill should have binding targets for unemploymen t or whether the right to a job should be enforceable through the courts, but also over whether there was a natural rate of unemployment and what the causes of inflation were. As the months wore on, political momentum was draining away; Jimmy Carter’s political honeymoon was winding down, unemployment was beginning to be replaced by inflation as the nation’s #1 economic issue, and the approach of the midterm elections made the passage of major legislation less and less likely.

Even as frustration mounted on both sides – with Jimmy Carter’s political advisor Stu Eizenstat warning his boss that they needed the Humphrey-Hawkins Act to retain the political support of African-Americans and labor groups for the 1980 election – what almost no one knew was that Charles Schultze was going around the negotiations to privately brief Senators on how to attach hostile amendments to the bill. The result was a chaotic process in which painful compromises were undercut by further amendments, with neither the bill’s co-sponsors nor the Administration having the ability to save the bill from suffering the same fate as the 1946 Employment Act.

And even after all of this, behind closed doors the Carter Administration was looking for excuses not to enforce the paper tiger version of the Humphrey-Hawkins Act that had been allowed to pass into law. Which made it all the more ironic when Carter’s hand-picked Federal Reserve chairman plunged the country into an election-year recession…

Inspiration:

This chapter came from a number of different sources. From the secondary literature, I knew that the Humphrey-Hawkins Act was a major attempt at establishing a job guarantee right before the advent of Ronald Reagan washed it all away. And having already done my chapter on the 1946 Employment Act, I became very curious as to why DJC wasn’t (as so much other progressive legislation had been) defeated in Congress, but rather passed as dead letters.

And then of course, I got into the archives and everything changed…

Research:

Speaking of secondary literature, thankfully a number of different scholars had done work on the jobs programs of the 1970s. James Patterson, my advisor Alice O’Connor, Jeff Bloodworth, and Margaret Weir had all done important work that formed the foundation of my approach. A crucial aspect of their approaches, however, is that each scholar tended to either look at the Humphrey-Hawkins Act or the Program for Better Jobs and Income, but no one had looked at the two together.

Bringing the two pieces of legislation became crucial for my narrative, because it revealed the critical importance (once again) of timing. Despite the fact that the 1977 version of the Humphrey-Hawkins Act had been introduced in January, the fact that the Carter Administration announced their own competing effort meant that the two sides didn’t sit down to talk for months, which is a lifetime in politics. Moreover, the fault lines within the Carter Administration over the two bills were virtually identical (and a lot of the internal memos over the HHA referenced conflicts over the same issues carried over from the fight over the PBJI).

The second crucial find came from my decision to cover the whole of the period from the New Deal to the 1970s, because it meant that I went to the Harry Truman Library. And while originally I was only there to look at papers relating to the 1946 Employment Act, the fact that all of Leon Keyserling’s papers from the 1920s through to the 1980s are housed at the Truman Library meant that I found a treasure trove of materials relating to the Humphrey-Hawkins Act that I wasn’t expecting. This provided me with an in-depth look at the entire development of the bill, from the drafting process where I could read Keyserling’s memos to Hawkins arguing for his version of a job guarantee to the negotiations with the Carter Administration, where I could read angry letters from Keyserling to Schultze accusing his former employee of betraying the cause of liberalism.

Relevance:

I would argue that there are two main takeaways from the Humphrey-Hawkins Act for the present and future of social and economic policy.

The first is that ideas really matter, and it’s important for activists to push for a broad range of ideas at the table. The hegemony of Keynesian economics within the post-war Democratic Party meant that when Keynesian economics broke down in the 1970s, it induced a kind of intellectual paralysis in both the legislative and executive branches, where total uncertainty reigned and any action seemed likely to loose Weimar levels of inflation on the world. Similarly, it really mattered that the debate over the 2009 stimulus was between Larry Summers and Peter Orzag, with Christina Romer excluded almost as much as Paul Krugman, let alone the MMT heretics out on the fringes.

The second is that presidents really matter. In the conclusion of this chapter, I make an analogy to a famous theory about 19th century German history:

The German historian Rudolf Stadelmann is well known for his “any Coburg prince theory” of the failure of the 1848 Revolution in Germany. In his view, any German prince other than Frederick of Prussia would have accepted a compromise with democratic forces and established a constitutional German federation. The excessive conservatism of this prince doomed German liberal democracy. A similar argument might be made for Jimmy Carter. The average Democratic governor would probably not have botched the Humphrey-Hawkins Act or created his own crises by staffing his administration in ways that fomented conflict and competition as the administration tried to wrestle with unemployment and poverty. There would have been difficulty, given the divisions within the Democratic Party, but without the rudderless conflict within the Executive and the critical eighteen month delay caused by the extended negotiations, a much stronger bill would have stood a much better chance of victory.

While I think Jimmy Carter is one of the best ex-presidents that the U.S has ever had, in a lot of ways he was maybe the worst possible person to be a Democratic president in the mid- to late 1970s, both in terms of his management style and his ideas about public policy. When we look to 2020, we need to be very careful that we don’t allow enthusiasm about a candidate’s outsider or unconventional character blind us to the concrete policy positions they hold and their ability to execute on them.

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