Which Comes First – Demand for Goods and Services, or Jobs?
Posted by Michael A. Kamperman on October 11, 2009
The Whitehouse and Congress are looking at the looming 2010 elections in conjunction with the rising unemployment rate and are beginning to sweat. The realization has hit home that rhetoric alone cannot gloss over the fact that the stimulus bill has failed to create jobs and stem the rise in the unemployment rate as promised. A new package of measures to stop the nation from hemorrhaging jobs is about to be on the table. However, constraining a truly transformative job creation bill will be an emphasis to limit increases to the federal budget deficit. Therefore, whatever emerges from Congress will be limited and targeted. It will also be designed to be politically palatable to independents that will prove to be pivotal in choosing our next Congress in 2010. While I believe that we should ignore increases in the federal deficit and should print money to repurchase most of our outstanding U.S. Treasury bonds, the political reality is the deficit hawks will be able to control and limit the size of the next round of federal job creation stimulus. Hence, we must get the maximum bang for the job creation buck. The question Congress and the country should be asking is which comes first – demand for goods and services, or jobs? Most mistakenly believe that the key to re-igniting demand is job creation. The simple premise is people will spend if they have a job. But in my mind they are getting the cart before the horse. Businesses do not need incentives to hire workers they do not need. Businesses will hire workers when they see top line revenue growth and their existing workforce unable to keep up with demand.
One of the ideas rising to the top of the heap in Congress is a job creation tax credit worth $3,000 to $5,000 depending on the wages for the new job. This idea is deemed palatable to a broad cross section of the electorate. Yet, I do not know of any business person that will spend $36,000 to create a job they don’t need just to save $3,600 on their income taxes. The tax credit will wind up as a windfall going to the few businesses that are seeing top line revenue growth and already need more workers. This ineffective job creation tax credit idea will consume most of the stimulus money on the table and will not solve our unemployment crisis.
If the federal government is going to spend money to create jobs, let’s let the government create the jobs it knows how to create best – government jobs. In the September unemployment report we lost over 50,000 full time government jobs, mostly at the state and local level. Those lost paychecks count just as much as lost private sector paychecks when you own the local restaurant, drycleaners, or community bank. This year over 40,000 teachers were pink slipped and not returned to the classroom. We should start by spending money to hire these teachers back. In my community of Waco, Texas, we need to expand I-35 in the northern part of the county and we need to build an overpass on Highway 84 where a new intermediate school is being built. But there are only funds to choose one of the shovel ready projects. If the federal government would increase it’s spending on the type of infrastructure projects the government normally spends money on, then private sector jobs would be created to build the overpass that seems to be out of the running for funding. We will get the most bang for the buck if the federal government focuses on doing what it does best. To really create jobs and significantly lower the unemployment rate, the Federal Reserve will need to print a lot of money and the Whitehouse will need to come forward with a massive Marshal style Plan for job creation. A couple of hundred billion dollars isn’t going to significantly lower the unemployment rate. Perhaps the President will get the message to push all in on the economy in 2011 when the 2012 election looms even larger for the Whitehouse and the unemployment rate is much higher than it is now.
