Forecasting the trajectory of the U.S. economy is more art than science. Understanding what will determine whether 2012 brings economic growth and sustained improvement in employment or another recession calls for reading data as well as tea leaves, which means even the experts disagree. The S&P which recently jumped four percent in one day seems to suggest renewed hope, until we recall that it has done so seven other times since the financial collapse of 2008 and fallen by that amount or more ten times in the same period. Average Americans can hardly be faulted for throwing up their hands and being economically confused and cautious.
For the past three years, we have been engaged in a national debate over who was responsible for getting us into this mess. Assigned as chief villains have been the president and Congress (deficit spending, policy gridlock), government bureaucrats (lax oversight of financial markets, over-regulation of business), big banks (faulty investments and even riskier insurance for what they knew were faulty investments), and consumers (buying what they could not afford and defaulting on credit card and home loans). But fault-finding, however cathartic, does not create jobs.
So, at the same time, we have been engaged in arguing about who is responsible for bringing the economy back. Congress and the president have been credited (at least by some) with preventing further deterioration, but their ability to right the economic ship seems in dry dock because of drastically differing political and economic policies, the constraints of the federal deficit and debt, or just an inherent distrust of federal power. The financial sector -- big banks and investment houses -- are focused on making money, not things. As a result, they may hire some analysts but their contribution to job growth will remain miniscule. Consumers, who are urged to spend money because they represent 70 percent of the economy, have been reluctant. But even if they spend, it will come mostly at the cost of increased consumer debt, which means that a job their spending creates today may be lost tomorrow when they curtail that spending to pay off their debts. And with unemployment still very high, there are just too many consumers who can't afford to buy anything.
So if the government and consumers lack the money to spend, and if what Wall Street spends does not lead to much job growth, is 2012 a lost cause? Not according to an intriguing proposal by William Lucy, Professor of Urban and Environmental Planning at the University of Virginia. Lucy argues that a huge unused stimulus can be found in $3 trillion in cash that corporations have been hoarding, waiting for the economy to pick up again. Lucy dubs his proposal the "Ten Percent Solution" because he suggests that corporate American take just ten percent of that cash and invest it in "research and development jobs, equipment upgrades, tackling deferred building maintenance and replacement, internship and trainee programs, energy conservation gains, decentralized energy generation, and on-site water retention." That $300 billion in spending, Lucy argues, could bring the unemployment rate down significantly, partly due to direct job creation and partly due to the jobs that result from the spending of these now-employed people.
There is room to argue with Lucy's assumptions (some estimates put the corporate cash on hand at much lower levels), but his proposal makes an important point. It's time we asked corporate America to take more responsibility for creating jobs. Quarterly earnings and year-end dividends are two measures of corporate success, but corporations have a responsibility to do more than make profits. This, in fact, is one of the chief arguments of the Occupy Wall Street protests, which unfortunately have succeeded more at generating press attention and arrests than the corporate change that Lucy suggests.
Lucy argues against the notion that the "ten percent solution" is a do-good effort, which frankly would have little to commend it to leaders of corporate America: "This isn't altruism, mind you, but enlightened self-interest; investment in a stronger company and certainly a stronger America in which the company does business."
Some American financial and corporate leaders have suggested that they should and would pay higher taxes, but taxing wealthier Americans lacks sufficient political backing and would only lower the debt slightly, perhaps making it easier to lower taxes for working Americans (through extending the payroll tax cut, for example). But even this would create few jobs.
If corporations have record profits and are awash in cash, government policy and public acceptance must have played some part in creating the conditions that made this possible. Lucy's proposal argues that it's time to help create the conditions for American job growth. In a mutually interdependent society, everyone has a role to play. That includes the corporate sector. Rather than passively waiting for consumer spending to pick up as a justification for hiring, Lucy argues that corporate hiring could create the spending it is waiting for. This is an economic argument, but it is also an argument based on what commitments we have to each other in society. On both grounds, the debate is worth having.
To get a copy of Lucy's full proposal, contact him at: whl@virginia.edu.