President Obama's job bill suffers from much of the same problems that we witnessed with the 2009 stimulus package: too little, too late, and too timid. Like the first stimulus, the new bill relies heavily on tax cuts and subsidies, which have not shown to create many jobs. While it is true that the 2009 deal saved many jobs by sending money to cash-strapped states, we are still down 15 million jobs. Moreover, companies are sitting on $2 trillion and banks are holding another trillion, so a reduction in the payroll tax will not push companies to hire more people. The only way to bring back full employment is for the government to simply step in and hire people -- no one else will.
FDR got us out of the Great Depression by producing millions of jobs out of thin air, and that is the only solution. In fact, if you add the price tag together for the two stimulus bills, $1.3 trillion, you have the money to hire 25 million at full employment for a yearly wage of $52,000 or two years at $26,000. Of course, we should shoot for about a 3-4% unemployment rate, which would cost much less, and once these people are working, they can start paying their mortgages and help the housing industry recover. If we then subtract unemployment benefits and add new tax revenue, the cost of full full-time employment is greatly reduced. In fact, each time you reduce the unemployment level by 1%, you bring in $90 billion in tax revenue, and so a 5% reduction in the unemployment rate would trigger a $450 billion reduction in the deficit.
In this virtuous circle, the more people working results in more tax revenue for the states and the federal government, which means that the layoff of public workers, like police, teachers, and nurses can be avoided. In this growth model, you do not have to rely on the whims of outsourcing corporations to choose between big bonuses or hiring more workers. Furthermore, with the multiplier effect, having more workers produces more consumers, which then generates more jobs and more tax revenue.
In short, tax breaks and subsidies are a risky way to try to create jobs. Of course, we have the Republicans in Congress who can block this bill, but if the President stopped linking jobs to higher taxes or cuts to Medicare, he would draw a sharp distinction between himself and the Republicans. Moreover, this jobs program could be funded out of TARP funds or the Fed. After all, the Fed is lending banks money at a historic low, so a jobs program could be funded through no-interest loans between the Fed and the government.
If Obama wants to win re-election, he should run on a new job's program and nothing else. Forget about reducing the deficit, cutting entitlement programs, reducing taxes, ending tax subsidies -- all of these are highly divisive and counter-productive. Even if the only thing the new workers do is to dig and refill holes, the program will be a success. In reality, we have many shovel-ready projects that range from needed infrastructure repair to the production of alternative energy sources. The key is to start now, and make it big, visible, and simple.
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