03/18/2010 05:12 am ET | Updated May 25, 2011

Stimulus versus Deficit Reduction? Wrong Debate

"With food stamp use at record highs and climbing every month, a program once scorned as a failed welfare scheme now helps feed one in eight Americans and one in four children."

New York Times November 29, 2009

Hunger is returning to a nation that has been blessed with everything. Shame on us.

The Wall Street bailout combined with the stimulus package was supposed to put our people back to work. Instead, these policies created another record year for Wall Street profits and bonuses while the jobless rate is the highest since the Great Depression. Even the Federal Reserve is forecasting an unemployment rate that will stay above 9 percent through 2010 and above 8 percent through 2012. It could be a decade or more before we see full-employment again. This is an unmitigated disaster for real people trying to hold their lives together.

Some economists argue that the initial stimulus package was too small to make up for the gaping hole the financial crisis tore out of the economy. But that analysis overlooks the incredible inefficiency of the stimulus itself. How could a $787 billion stimulus package only produce about 650,000 jobs, even if only half has been spent so far? At that rate the program is costing about $600,000 per job. That amount should be producing more like 10 jobs, not one job.

It seems as if the Congress and the Administration did everything possible not to create jobs directly. Instead, overall spending increases were supposed to make up for lost consumer demand and reboot the economy. All would be well as demand increased and bank lending resumed, especially to small businesses. But the lending is still stalled, in part that's because we no longer live in a unified economy. The wealthy and the large Wall Street banks seem to live in a world of their own.

Spending more money to increase overall demand no longer guarantees that new jobs will be created. For example, a careful accounting would show that a good deal of the stimulus money ended up as profits for contractors of all kinds rather than in new jobs. Also, we know that much of the renewable energy money has leaked abroad to purchase wind generators and other equipment. (See "Gone With the Wind: Blowing U.S. Tax Dollars Off Shore")

The answer is not more stimulus in general. The answer is direct hiring by federal, state and local governments. If we want more teachers, then we should create a national teachers' corps. If we want to insulate homes and businesses then we should build national caulkers corps modeled after New Deal programs like the Works Progress Administration.

The job/cost equation changes dramatically when government does the hiring. By the time the $787 billion runs out, the Obama Administration will be lucky to create 2 million new jobs. However, had that money gone directly into job creation at about $75,000 a job including administration and benefits, we're talking 10.5 million new jobs --- jobs we can believe in.... and count.

We do in fact need a new round of stimulus spending. But only if it funds direct job creation. We tried the indirect route and it doesn't put enough people to work.

And what about the deficit hawks? They sense the debate is drifting their way: "We all are living beyond our means"..."We have to get our fiscal house in order"..."The government is wasteful, always." Borrowing more, we are told, will lead to disaster. Not only will it put us more at the mercy of China which holds so much of our debt, but government borrowing will crowd out corporate borrowing and therefore kill jobs. You know the song and the hypocrisy--after all, it's those who claim to worry about the deficit who do the most to prevent the government from spending its money efficiently by demanding useless (and budget busting) tax cuts in place of effective, direct spending on job creation.

The New York Times recently joined the choir. In a lead article it argued that rising debt payments will dwarf the Pentagon budget in the next decade. But the New York Times, like the screeching deficit hawks are silent on the true underlying cause: The wealthy in America haven't been paying their fair share for more than 30 years.

We lead the world in billionaires. We also have the developed world's most skewed distribution of income. And our financial sector is much too large compared to the real economy it is supposed to serve. If we could see past our ideological blinders, we'd notice that there's plenty of money in this country tucked away in private hands. The super-wealthy never had it so good. If they ever paid anything like their fair share, as they do in Europe, our budget deficits would soon evaporate.

The Forbes 400 alone collectively holds about $1.5 trillion in net worth. You want deficit reduction? Then how about a wealth tax of 5 percent a year until the unemployment rate drops below 5 percent? That small tax on just 400 fortunate souls would reduce the deficit by about $75 billion a year. If we broadened the tax to include all those with a net worth of $500 million or more, we might generate more than $200 billion a year in public funds for debt reduction, or better yet, for real job creation.

A Tobin Tax on all Wall Street financial transactions also would move money from the financial sector to the real economy. A small fee would have almost no impact on 99 percent of Americans who invest long term for retirement or to pay for college. But the fee would dramatically impact the largest speculators who make billions of dollars worth of trades each day without creating one iota of value for the real economy. A Tobin tax could easily generate $50 billion a year for deficit reduction or job creation.

To put our people back to work we need to escape from the old debates. In our new billionaire bailout economy, jobs will be created when we directly create them and not before. Banks won't create them, nor will businesses until after the economy is humming again.

If we want to reduce our national debt, we need the super-rich and Wall Street to pay their fair share. If the fiscal hawks don't have the guts to correct our obscene distribution of wealth and income through progressive taxation and a Tobin tax, then they really have nothing useful to add.