POLITICS JANUARY 27, 2014
The first president to say the words “full employment” during a State of the Union address was Franklin Delano Roosevelt. In 1939 he argued that it was the government’s responsibility “to attain the full employment of our labor and our capital.” Four years later, in 1943, he went further, arguing that actual freedom, the Four Freedoms that included "freedom from want," required “the right to expect full employment—full employment for themselves and for all able-bodied men and women in America who want to work.” And it was the responsibility of the government to deliver it when the war ended, he said.
The last decade has not been kind to the idea of “full employment.” Unemployment remains higher than anyone believes it should be, while wage growth has been nonexistent for workers who do have jobs. The concept of full employment, once so essential to the liberal project, remains missing from the agenda. Indeed you can see the collapse of the liberal economic project by walking through the use of the term in State of the Union speeches. If President Barack Obama wants to save his failure to end high unemployment in his first term, while also orienting the Democratic party to the future, he should use the State of the Union to resurrect these two words.
Full employment is exactly what it sounds like. As economists Dean Baker and Jared Bernstein show in their recent book, full employment is the point at which additional demand will not create any more jobs. Unemployment is then just a matter of people searching for work in-between jobs. It’s also a period in which workers have significantly strong bargaining power, ensuring that wages increase faster than normal.
Google ngrams show the term’s use coming out of nowhere with the midcentury Keynesian revolution, and then slowly fading from the discussion in the past few decades. A closer look at the evolution of State of the Union speeches in the past 70 years bears this out.
For the rest of the mid-century period, presidents discussed full employment as something that was a responsibility of the government. Harry Truman used the phrase 16 times in his 1946 State of the Union, proposing a full employment bill, and arguing explicitly that “It is the responsibility of Government to gear its total program to the achievement of full production and full employment,” and, “All of the policies of the Federal Government must be geared to the objective of sustained full production and full employment.” In words that would be alien to our ears after living through the past five years, where deficit reduction consistently took precedence over the mass suffering of the unemployed, Truman noted that “the more successful we are in achieving full production and full employment the easier it will be to manage the debt and pay for the debt service.”
This continued into the Great Society, with Lyndon Johnson saying in 1965, “We seek full employment opportunity for every American citizen.” Richard Nixon, who was fundamentally constrained by liberalism in his domestic policy, mentioned full employment ten times between his 1971 and 1972 speeches, arguing that in the aftermath of Vietnam the government's new “goal” was “full employment in peacetime. We intend to meet that goal, and we can.”
After that, talk of full employment disappeared. When Reagan reintroduced the term in 1986, it was a much different concept. Here, the government’s responsibility is “to create a ladder of opportunity to full employment so that all Americans can climb toward economic power and justice on their own.” Full employment isn’t something that the government creates; it’s the result of individuals climbing, or not climbing, on their own. The implication is that full employment is always available, and unemployment is a personal failing—limited skills, weak motivation—rather than an overall market failure.
The term disappeared again during the Clinton and Bush years, and Obama has used it just once in a State of the Union, in 2010: “The only way to move to full employment is to lay a new foundation for long-term economic growth, and finally address the problems that America's families have confronted for years.” Like Nixon, Obama has always been fundamentally constrained by the ideology he was elected to overcome. Here, full employment isn’t something that the government could create through aggressive policy. Instead, it’s something it can only impact in the long-term with certain kinds of background investments.
This is a problem because the concept of full employment is a crucial element of Obama's getting a second chance at fixing our weak recovery and high unemployment, while also creating an agenda for liberalism after he’s left office.
Reclaiming full employment would help with the government’s failure to deal with the high unemployment in the aftermath of the Great Recession. Obama argued that the stimulus bill passed in 2009 would be sufficient to tackle the crisis, even though it was clear that this wouldn’t be the case. After that point, however, Obama couldn’t run against the economy, since it was his economy at that point.
Though the beginning of the response to the Great Recession was botched, the ending doesn’t have to be. And where the Federal Reserve declares full employment to be, the level at which they’ll stop their extraordinary measures to boost the economy, will matter just as much as the stimulus. If the Federal Reserve tightens money, and if the government continues its mad focus on deficits, unemployment will never get low enough to genuinely achieve a stronger economy.
It would also be an important way to convey how Obama and liberals want to tackle inequality. Conservatives will say that inequality is a matter of individuals making various choices—the poor don’t work enough, the rich marry the rich, and so on. The distributional impact of full employment, where wage growth at the bottom of the income distribution grows fast, shows that the economy as a whole plays just as much of a starring role in these outcomes.
Indeed, full employment would make many of our other problems easier to deal with. As Truman noted, the deficit would be easier to handle. It would allow us to have a more realistic notion of what things like education and marriage promotion are capable of doing to ensure economic security for our citizens. But make no mistake, this is a radical proposal, and it’s not surprising it vanished from public discussion in a conservative era. But bringing the idea back would be an important way of transitioning to a post-Obama liberalism.