Specifically, What Should Be Done To Improve The Job Situation In The US?

In his Saturday radio address, President Obama acknowledged the White House is exploring “additional options to promote job creation.” It’s about time. This is the worst job market in seventy years - including the longest duration of steady job losses.

If anyone had any doubt that something far more dramatic must be done, listen to former Federal Reserve Chairman Alan Greenspan. He warned Sunday against further stimulus because “we are in a recovery, and I think it would be a mistake to say the September numbers alter that significantly.” Greenspan has turned into an inverse soothsayer. After his cataclysmic error about where the economy was headed before the meltdown, his views about the future should be carefully noted as being the exact opposite of what’s in store.

The economy may be in a technical recovery but this is not a real recovery and the “green shoots” or “positive signs” that Wall Street cheerleaders love to shout about are phantoms of their ever-optimistic imaginations. The stimulus is working, but it is far from adequate. Before the stimulus, we were losing more than 500,000 jobs a month. Now that 40 percent of the stimulus has been spent, we are losing more than 250,000 jobs a month.

What to do? With the debt ceiling approaching and the gravitational pull of the 2010 elections increasing, the White House can’t go back to Congress with a formal bill to enlarge the stimulus package. Four simpler moves would be to:

(1) Use existing authority under both the stimulus package enacted earlier this year and the nefarious TARP bailout fund - extending and combining them into a fund to make up for state and local cuts in public school budgets, childrens’ health, and public transportation.

(2) Propose a one-year payroll tax holiday on the first $20,000 of income. Republicans as well as Blue Dog Dems could go along with this, and it would be a highly progressive tax cut since 80 percent of Americans pay more on payroll taxes than they do on income taxes.

(3) Give small businesses a “new jobs tax credit” for every net new job created over the next year. Granted, under normal circumstances this sort of jobs credit doesn’t do much, and it’s difficult to separate hires that would have happened anyway from net new ones. But we’re not in normal circumstances; small businesses, which are typically are responsible for most new jobs, still aren’t hiring. They need a boost.

(4) Dramatically expand the Small Business Administration’s lending programs, and have the Fed buy up the SBA’s debt. Big banks are not lending to small businesses. TARP has been an utter failure in this regard. The SBA and the Fed should circumvent them.

The politics of these four steps aren’t difficult. It would be hard to get a new stimulus package through Congress, but no member wants to be up for reelection when unemployment is in double digits and they can be accused by rivals of voting against steps to help small businesses, public schools, childrens’ health, and average working people who need a tax cut.

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Comment by Kiwi

2009-10-06 17:02:17

Constructive and sensible.
Ultimately government spending must be cut to match income, that will be a bitter pill to swallow but unavoidable.
Both tax and spending need to be cut.

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Comment by Duude

2009-10-06 21:40:15

Reich has mistitled this column. It should be how to spend money as inefficiently as possible. Making up for cuts in school budgets does almost nothing for adding jobs. True, some teachers might be retained but schools are hardly efficient with tax dollars as are any in the government employ. Small businesses create the vast majority of jobs and are far more efficient at making the most of any benefits thrown their way then government will ever be. Government doesn’t worry about efficiency because they’re detached from making the most of what they have. They know they can always ask for more later through their strong union lobbying.
The one year tax holiday will help people that have found themselves underemployed, but it will do little overall for creating jobs which is supposed to be what this column is about. The new jobs tax credit will have a limited effect and as Reich suggests it will be difficult to calculate who would have been hired anyway.
A far more efficient and wise move would be to offer an immediate tax deduction on what are otherwise depreciable capital investments for the next 12-18 months. While its true it will take some future capital investments from future years, the new investments will spur new economic activity that will lead to more hiring by both the manufacturers of that equipment as well as those making the new capital investments. The point is to get the ball rolling.

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