The necessary allies: Jobs and environment

Two of the world’s most urgent tasks — protecting the environment and creating jobs — both have enormously broad public support. Politically, however, both are orphans. Why?

Take the case of the environment: Its very broad, diffuse constituency presses government to impose unwelcome costs on one highly organized constituency after another. This architecture, quite predictably, produces unsatisfactory results. Until it can be replaced, the environment will be perpetually on the defensive, and its institutions will be attacked and progressively structurally weakened. Killing institutions kills policy but is invisible to the public and therefore politically costless.

The jobs story is also one of a giant but short-circuited popular base.

In most economies, including the United States, more than 40 percent of those who would like to work if jobs were in fact available are out of the workforce. This is a far larger percentage than the official “unemployed” figures, which only measure the politically relevant unemployed, i.e., those thrown out of work who have not accepted that they should “retire” and for whom typically dependency arrangements have not yet been made.

This 40+ percent of the total workforce comes heavily from healthy older people, the “disabled,” women, young people, those who have been institutionalized, usually both immigrants and minorities, and various otherwise disadvantaged groups. That is a huge potential political force, especially when you add all those who care about any of the above. Not to mention what remains of organized labor — because it is impossible to push prices up in a commodity market with a 40 percent supply overhang.

Moreover, taxpayers and the government should be thrilled if this 40+ percent were given the choice to work — which they overwhelmingly would take — because this would reduce dependency costs and the costs of the many social ills that are rooted in joblessness even as such a change would greatly and sustainably increase the size of the economy, its rate of growth and, therefore, the tax base.

All these many groups urgently need and want more jobs. Generally, this mass hidden unemployment is even bigger in other countries. And yet global mass unemployment is an orphan issue. Why? Probably because most of the people without jobs have given up. They accept the “fact” that there are no more jobs. This makes them invisible and voiceless.

What do we need to do to change this picture? These two groups of orphans — the overwhelming majority of humankind — need to ally. This should be easy because their goals neatly complement one another.

When one discourages hiring people, e.g., by imposing payroll taxes, the economy responds by consuming more things. That is because people and things are the two primary inputs into the economy. If one becomes more expensive relative to the other, people all across the economy will use less of it and more of its substitute. For example, as payroll taxes have increased, farmers have substituted harvesters for workers and chemicals for compost.

Here is the heart of the alliance.

Very probably, the single most effective way to cement this alliance would be to eliminate payroll taxes and substitute taxes on things: materials, energy, land, pollution. That one simple, effective price signal could dramatically increase both jobs and conservation.

Take the case of the United States. This tax switch could reduce the cost of hiring people 17 percent and, to leave the budget unaffected, would impose offsetting roughly 13 percent tax on employing things. The resulting 30 percent change in the relative price of people versus things could be a hugely powerful two-way catalyst.

This breakout from stuck conventional thinking could:

• Add roughly 40 million full-time equivalent, new, permanent, sustainable, chiefly good jobs over a capital cycle.

• Free individuals, families, businesses and governments from much of the current huge and growing costs of keeping so many people idle and dependent.

• Very significantly reduce the underlying cause of the many, massive and hugely costly social ills rooted in today’s enormous hidden unemployment (e.g., demotivated students, greatly increased health care costs and drugs/crime/violence/fear).

• Create an incentive just as powerful for conservation as for job creation.

• Do all this through a simple price signal — an approach that is accepted comfortably across the entire ideological spectrum. It is efficient. It avoids picking winners and losers. There is no new bureaucracy — and therefore also no delays or corruption. Some conservatives value it as an alternative to case-by-case environmental regulation. Many conservative economists see it as merely undoing the huge price signal sent more or less unwittingly over the past decades to increase payroll taxes from 1 to 40 percent of Federal revenues.

• Achieve all this without adding $1 to the debt.

• Allow some combination of tax cuts and/or increased social investments in long neglected areas. This politically, highly attractive choice would flow from a faster growing, bigger economy (and therefore tax base) combined with lower dependency and social ill costs to government, as well as to individuals and businesses.

• Create a giant and defining new political alliance.

What is true for the United States is far truer almost everywhere else. The payroll taxes elsewhere generally are higher. In Brazil, for example, they are several times higher.

The logic is simple Economics 101. And the evidence is persuasive. Among Organization for Economic Cooperation and Development member countries, those with payroll taxes exceeding 40 percent have 11.5 percent fewer people working than those with payroll taxes less than 30 percent — and this result comes from varying only one side of the two price shifts proposed above.

There are three prerequisites for any major change to succeed — and they are all present here. There is a huge opportunity. There are tools that (1) work and (2) are acceptable to everyone, regardless of ideological bent. And, third, this alliance of the environment and everyone who could benefit from 40 million new jobs (and their family and friends) makes this a giant political win.

So, what is holding the world back? The idea is still unfamiliar.

Success requires introducing a new framework, a new ability to see beyond the old definitions and arguments. Isn’t that precisely where Rio+20 can make its biggest contribution?

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