The Pace Of Job Creation Needs To Be Accelerated

The most significant and measurable failure of the economic stimulus package, the so-called American Recovery and Reinvestment Act of 2009, is its inability to quickly create jobs.  The $787 billion set of programs, which President Obama signed into law in February, have done little that is tangible so far, a fact even the Administration would admit.

Job losses through the first five months of the year still average more than 600,000 per month. It is almost certain that another three million people will be out of work in the last seven months of the year.  June’s figures will be released July 6.

The stimulus package does provide some help for those out of work, about $40 billion in extended and increased unemployment benefits. One large part of the legislation may save tens of thousands of jobs. The education segment includes nearly $45 billion to aid local school districts by among other things keeping teachers and other educators at work in an environment where municipal governments cannot support them.

Unemployment is almost certainly getting worse at a faster rate than the Administration expected when it proposed the bill five months ago. A great deal of the stimulus package is not meant to directly help employment at all.  Money to underwrite Medicaid and other healthcare benefits totals more than $100 billion. Tax cuts, which may indirectly help employment rates over time because they reduce companies’ expenses, are another $288 billion of the bill.

What is left of the stimulus bill, which may eventually help improve employment, is the money to be spent on the infrastructure of the energy grid, broadband deployment, and the building of housing, bridges, roads, and other public works projects. The government puts this portion of its spending at $80 billion, but the amount of that meant to go directly to new employment is much less than that, perhaps as little as $50 billion.

The government has created a poor short-term economic plan by forcing the closure of many companies and insisting on layoffs at others because of policies aimed at helping the financial services and auto industries. While the programs for consolidating banks and making the car industry more efficient may end up being exactly the right thing to do, the intermediate effect is that at least several hundred thousand people working at banks, bank suppliers, car companies, dealerships, and auto supply companies are out of work or will be out of work very shortly.

The government had the chance, and may still have the chance, to keep many of the businesses which are folding due restructuring, from having to dismiss large numbers of people in a very short period of time. This is especially important since some of these job losses were caused directly by the government. The economy could not replace these jobs quickly, even if it was robust.

The criticism of paying people who are not working or whose jobs have become unnecessary is that it is socialism plain and simple. That is partially true. The government’s current alternative is to let those people move to the unemployment lines and that puts a burden on many state governments which they cannot afford as their own revenue bases are eroded by the bad economy. One side effect of the increased financial responsibilities that the unemployment payments bring to the states’ budgets is that it makes them more likely to cut their own work forces in an attempt to balance their budgets increasing the cycle of job losses.

The cascading effect of improving the economy through a series of government interventions to rebuild strategic industries is that the Treasury can provide enough money so that companies do not have to phase-in layoffs. They have the  government capital to idle plants, close bank branches, empty factories and office buildings. Essentially, these government-supported businesses do not have to do any of the planning for cutting costs that most other businesses would have to. Eliminating jobs is easy and can be done overnight when there is no need for facing immediate financial consequences. Any mistakes in cutting costs are masked by the government’s aid and the fact that an abundance of money covers an abundance of errors.

When people stay in jobs, jobs that need not exist any longer, they remain, at least to some extent, consumers. They can pay mortgages and education bills. They have been given some time to find new work without relying on unemployment benefits which will probably be well below the wages they earned before they were fired.

The federal government has almost guaranteed that it cannot save and create the jobs that it intends to by refusing to break with the tradition that people who do not work do not get paid. The Administration and Congress have rejected the idea that there is any effective rear-guard employment preservation action to keep the recovery on course.

There is no recent precedent for the government to pay the wages of people who are out of work. There is also not a precedent for the government restructuring industries as fast as it has on the scale that it has, effectively forcing its own citizens out of jobs that they might have otherwise kept for months or even years. These are jobs that probably needed to be eliminated, but in a free market system that would happen as businesses made decisions based on their executive skills and financial strengths and weaknesses. The government has removed, at least temporarily, the need for management judgment and sensible balance sheet stewardship by providing capital in abnormal abundance. The unexpected consequence is an explosion of unemployment in a remarkably short period of time. The federal government can clean up after that mess by at least giving the masses of people it is putting out of work several months of notice and full salaries to make up for the ingenuity of Congress and the Administration.

Douglas A. McIntyre