President Frank Underwood's "America Works" program — a plan to create 10 million jobs at the expense of entitlement programs — is one of the key plot points of House of Cards, Season 3.
Before we go further, two spoiler alerts: one, this article will discuss a major storyline in the latest season of House of Cards. And two, Frank's plan is a terrible idea.
After a few episodes, here's much of what we know about Underwood's plan:
- Unemployment is up in the House of Cards universe, as we hear from Stephen Colbert. We don't know what the rate is or exactly why it's up, though maybe it's because of last season's trade war with China — or political instability.
- Underwood wants to solve this by first letting Americans know they're "entitled to nothing." So he plans to cut Social Security, Medicare, and Medicaid, freeing up $500 billion to create 10 million jobs (though we don't know exactly how much he'd cut those programs or how he might otherwise change them).
- He'd then create jobs by hiring people through infrastructure programs, the military, and the private sector.
That leaves an awful lot of holes, and before we can get into just how bad this idea sounds, we have to answer one big question: What does he mean by "universal employment"?
Universal vs. full employment
Underwood says his plan would create "universal employment," while at other times he uses the phrase "full employment." But from the specifics we're given, it's clear his plan would go well beyond what most economists consider necessary for full employment.
"Full employment" is commonly described as existing when no one is jobless because of cyclical reasons like a recession. It does not mean bringing the unemployment rate down to 0.
Case in point: At the moment, in the United States, there are around 9 million people unemployed and another 700,000 discouraged workers (that is, people who would like to work but have been so discouraged by the bad economy that they've stopped trying to look for jobs). The unemployment rate is 5.7 percent.
The Congressional Budget Office says that we'd reach full employment once the unemployment rate dropped to around 5.4 percent. That would still leave roughly 8.5 million unemployed people right now (though that number could shift if more and more people entered the labor force and started seeking jobs).
In the House of Cards universe, meanwhile, there are about 10 million unemployed Americans. "Ten million of you can't even get a job, even though you desperately want one," Underwood says in his TV address. (For simplicity's sake, we'll assume he's including discouraged workers.)
And, in response, Underwood wants to create 10 million additional jobs. So it appears that Underwood wants to eliminate unemployment, bringing the rate to 0 percent.
Zero unemployment is impossible
The problem is that Frank Underwood can't bring unemployment to 0 percent. No one can do that.
Besides cyclical unemployment, there are two other main types. One is frictional — the unemployment created by people changing jobs, getting fired, moving across the country, and so on. That sort of unemployment is actually a good thing and is also unavoidable. It means, for instance, that people are moving to jobs that better suit them. And it's not a good idea to try to get rid of this altogether, especially because it's virtually impossible.
That leaves structural unemployment, which involves the mismatches between people and jobs. That's not impossible to eliminate, but it seems difficult to do with Underwood's program, to say the least.
Imagine that there are 5,000 openings for firefighters nationwide but only 2,000 people qualified. Do you now train lots more firefighters? What if the people who are qualified to be firefighters don't live near the job openings? To overcome this sort of unemployment, Underwood's plan would have to invest in a lot of job training … or hope people are going to change cities.
And the show doesn't even get at the question of underemployment, which is when your job doesn't use your full skills or give you as many hours as you are willing to work. Underwood says, "If you want a job, you get a job." But he doesn't say whether those jobs give people the right kind of work...or even enough work.
There's another big problem with trying to push unemployment too low: inflation could spike. Many economists believe that if you push unemployment below a certain level — the NAIRU (or non-accelerating inflation rate of unemployment) — you will get runaway inflation.
Why would this happen? If the unemployment rate drops too low, employers are competing for fewer and fewer job candidates, which mean wages would start to rise and rise, leading to higher prices, which in turn could lead to a wage-price spiral. To see how this works on a smaller scale, look at stories about western North Dakota during the recent oil boom — Walmart there paid a starting wage of $17 per hour in part because they had to compete for workers.
There's another potential knock-on effect: if the plan does increase inflation, it could lead the Fed to raise interest rates in an effort to keep prices under control. That, in turn, could put a damper on economic growth.
Come to think of it, after three seasons of this one, we have yet to see a Federal Reserve chair show up in House of Cards. And if Underwood is trying to pull unemployment artificially low, you can imagine the central bank would be concerned. Will we get to see the Fed chair march into Underwood's office and tell him he's lost his everloving mind? Also: can this please be a Janet Yellen cameo?
Creating more unemployment by trying to curb unemployment
Put Social Security, Medicare, and Medicaid together, and you get nearly $1.9 trillion in spending in a year (as of 2013). Underwood says he would cut these programs to pay for his $500 billion jobs plan, though he doesn't offer any details.
Cutting $500 billion from these programs in one year would therefore be extremely drastic. Phasing in the cuts over a long period would be more feasible (note that Obamacare reduced Medicare spending by about $700 billion over 10 years by cutting payments and hospital reimbursement rates), though almost certainly contentious.
Either way, we get the sense that the cuts would be deep. As one congresswoman says later on in the season, "I was skeptical at first — both my parents benefited from Social Security, and I've always counted on it for myself. But when I think about my kids, and my grandkids..." And, early on, Underwood casts it as shameful that older Americans live off taxpayer dollars that he could be spending on jobs.
Ignore the horrendous politics of this and just consider what happens, for example, if you slash aid to older Americans: you bump a lot of them back into the workforce (and send those who can't work into poverty). So by cutting these big entitlements, America Works could undermine its very goal of cutting unemployment by sending elderly Americans out looking for jobs. Come to think of it, this might be why Underwood feels like he needs 10 million jobs — his plan could send lots of would-be retirees back looking for work.
- For a look at another government work guarantee program, read up on Argentina's Jefes y Jefas program.
- For a more general approach that tries to solve the inflation problem, read up on Modern Monetary Theory's job guarantee idea, which looks quite a bit different from what Frank Underwood seems to want.
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