Obligatory "jobs" post, part 2

To hear most economists explain it, the problem today is that we have too little demand.  Whether that is because the government isn't spending enough or people are afraid to invest because the government is spending too much is a topic for yak shows and other blogs.  The fundamental problem is that people who have the capacity to increase their spending are not because there is simply nothing that they want, can afford, but can't find.

For simplicity, we'll use "rich" to refer to "people who have the capacity to increase their spending."  This is not meant to be pejorative, being wealthy is, always has been and by definition always will be pretty awesome.  The hazard, of course, is that because this group of people are the ones with the capacity to make life better for their fellows, there's a lot of implicit, or explicit, pressure on them to do so.  In individual-celebrating America, the idea of being one's neighbors' keeper is frowned upon as much for our collective desire to not be "kept" as anything else.  As a result, we get these periodic generational swings in which policies favoring the accumulation of wealth result in a small population collecting a rather huge portion of it, and rest find themselves facing essentially no prospect for increasing net worth.  Nations have faced this challenge throughout history, often with prodigious bloodshed.  Before we reach that point in the US, your pie maker proposes we ask the question from last time in a more focused way:

How can we convince the "rich" to spend more of their money on things that require people to work?

The absolute easiest way to do this is for the US federal government to authorize spending on public sector wages.  The "rich" buy US Treasury bonds, and people go to work.  If we buy into the idea of efficient markets, especially for "savvy" (i.e. very rich or institutional) investors, then the organization that is currently being judged best able to generate acceptable returns on capital is the United States Treasury.  This shouldn't be surprising given the number of former investment bankers working there, and Treasury people on Wall Street, but let's not go there today.  More to the point, recently this approach has lost favor with much of the political establishment, both here and abroad.

The second easiest way is to provide them, and so grow the "can afford" part until it includes enough additional goods and services that the unemployment rate drops.  This is what central banks are supposed to do, but we appear to be at the limit of their control authority.  Despite billions (trillions?) spent yearly on marketing, it's fairly hard to convince credit-worthy people to procure more stuff right now, even if they felt their employment perfectly secure.  Expanding "creditworthy" to include more acquisitive types would be functionally similar to treating a hangover with whiskey, which might work but is far more likely to cause more serious problems in the future.

Another way is to intentionally alter the tax code and other policies to boost the marginal value of labor relative to capital.  This suggestion is so completely radical that our bipartisan corporatist government (economist link) simply will never implement it, so it's hardly worth writing about.  However, for as long as profitable securities transactions are taxed at 15% and real profits on sales taxed at 35% (less for companies with good connections), there's hardly any reason for an organization with liquid reserves to actually produce anything, except insofar as that production might induce some sucker to buy the holdings of the organization.  As long as financial instruments are treated as more valuable than physical production, and governments insure their value while letting a market decide the price of goods, we will continue to see impressive wealth concentration and protests against the system that supports it. 

Now that we've left the world of the politically possible, there's one step beyond tax reform that must be taken.  As bad as unemployed life is right now, it needs to become worse or the minimum required marginal product of labor will continue to lag its marginal revenue in an environment of anemic economic growth.  There are a number of ways to do this, and none of them are pleasant.  One analyst suggested, possibly in earnest, that we restart the Byzantine option: six months of support in return for six months of hard labor.  A less extreme version is the Georgia Works program, although for really hard, low-skill work, more incentive is needed on the supply side .  Reducing our quality-of-life requirements will be an important part of any sort of new energy economy, and making clear that the floor is lower than a crappy apartment and bland food might just help that message sink in.  Plus, it might make it easier for your pie maker to hire a full-time dishwasher and copy editor.