Job Creation Requires Credit and Confidence
Posted by Michael A. Kamperman on December 2, 2009
Tomorrow the Whitehouse is hosting a jobs summit designed to come up with creative ways to create jobs. It most likely will turn out to be a colossal waste of time. Platitudes like we should focus more on exports are not going to create jobs. Neither will a job creation tax-credit create positions companies either don’t need filled or can’t afford. Who would create a $30,000 job to get back $3,000 on their taxes? America already has the greatest entrepreneurial spirit in the world. We also lead the world in inventing new and better products. China may make stuff but we create stuff. Yet you cannot start a new small business if you cannot access capital. The banks have extremely tight lending standards and are cutting back on credit cards. Many small businesses use the owner’s credit cards to fund operations and provide liquidity for the business. And it is scary to start a new business when consumer spending continues to drop. Surprisingly small business owners say access to credit is a big problem but it isn’t their biggest problem. Their biggest problem in this downturn is sales. Demand has simply dried up. To create jobs we will need to open the credit markets back up to consumers and small businesses and we will need to restore confidence to spur spending.
The credit markets could be fixed quickly if we had a Treasury Secretary who had the guts to walk into the Whitehouse and tell the President he needs to spend what little political capital he has left on fixing the banks so they can resume normal lending again. But confidence is a tricky thing to restore once it’s been lost. We run the risk of creating a Humpty Dumpty with consumer spending if we don’t act soon to restore economic hope and swagger to the American populace. Rhetoric alone isn’t going to get the job done. Consumers need to see action and need to see something tangible that they can count on.
What we need to do is lower the age for Social Security and Medicare to age 60 and give everyone on Social Security a 20% raise. This will cost $400 billion per year. We would instantly and dramatically lower the unemployment rate if we could encourage people in their early 60’s to retire. Most of the extra Social Security money would get spent increasing revenues for companies which could then afford to hire more workers to keep up with increased demand. It would also lessen the anxiety over retirement funding sources for many people in their 50’s increasing their confidence to spend. The younger workers would also gain confidence and they and their friends move from the unemployment lines into the jobs of the recently retired. Despite the ranting of the deficit hawks America can afford to do this. The federal government is spending an additional $100 billion annually right now just to pay for extended unemployment benefits. Then one has to add in the costs of having an extra 10 million people on food stamps and millions more on Medicaid. Not to mention the direct loss of tax revenue from the unemployed and the indirect loss of tax revenue from decreased consumer spending. We need the President to step forward and tell us what we can achieve rather than telling us that we have to hunker down and live within our means.
Badtux said,
By and large I agree with you, but I *do* disagree with your notion that job creation credits are entirely useless. They are useless except *if addressed at employers who’ve outsourced overseas*. Bringing jobs back home from India and China is one way to increase employment here without actually increasing corporate headcount, and a set of tax incentives and subsidies for “un-outsourcing” jobs could bring back hundreds of thousands of jobs that have gone overseas over the past decade. Which sounds like a small number, but remember how this sort of thing ripples through the economy, and suddenly it’s not so small, because those now-gainfully employed people spend, which in turn adds its own multiplier to hiring.
So yes, a non-targetted job creation credit isn’t going to do much for creating jobs, but there decidedly *is* a case for making it more attractive for large corporations to un-outsource back to America via a combination of tax code changes and job creation credits and subsidies for un-outsourcing.
Finally, I do not think that spending can rebound as long as people are worried that they will lose their house and car if they lose their job and are saving any extra money they get for their own ad-hoc unemployment insurance. I realize I seem like a one-note penguin on the need to reform our unemployment system, but I can’t see any way to get out of the deflationary spiral as long as people are doing the modern equivalent of stashing money under mattresses rather than spending and consuming. We really do need to add car and house notes to the unemployment insurance system if we’re going to encourage people to spend rather than save up for their own ad-hoc unemployment insurance. Not to mention that this would solve some of the banks’ problems with troubled loans too, while keeping the unemployed in their homes rather than putting their houses onto the market and driving the housing market down even further in its current deflationary spiral. Heck, if there was a real unemployment insurance system that covered house notes I’d probably go out and buy a house right now, rather than sticking with migratory living…
Badtux said,
Well, at least the spam economy is doing well.