Friday, January 15, 2010

How Washington Can Help The US Worker

As job losses continue and the unemployment rate remains high, the claim that the first economic stimulus package helped create long-term jobs is heavily disputed. Eric Jackson from The Street says that helping existing businesses remain competitive and thereby reducing the need for redundancies would be a better route to take. See the following post from The Street.

With last Friday's announcement that the economy lost another 85,000 jobs in the month of December and an unemployment rate still above 10%, renewed pressure is on the federal government to create jobs.

However, the truth is that it can't create any new jobs -- at least ones that are going to last beyond any short-term project. A new study shows the government's efforts had virtually no impact on changing the jobless rate.

We endlessly hear about the unemployment rate and the need for jobs. Many economists and politicians are now talking about the need for more jobs and a second stimulus. However, we need some clear headedness about this discussion.

What exactly can government do to fix this problem of too many unemployed or under-employed? I think the honest answer is not much directly or immediately. It can only create jobs in the long term and indirectly, through following policies that enable businesses to better compete.

The government passed a $700 billion TARP program to aid the country's financial institutions in the fall of 2008. By measure of the fact that all the big banks and brokers are still around today, with much of the money repaid to the American taxpayer, this program was a success.

We can quibble about whether the big banks such as Citigroup(C Quote), Bank of America(BAC Quote), and Wells Fargo(WFC Quote) are lending enough or how much Goldman Sachs(GS Quote) and Morgan Stanley(MS Quote) are paying their top performers, but the fact remains that these institutions are still standing today. We weren't so sure they would be 12 short months ago.

On the heels of the TARP program, the government passed a $789 billion first stimulus program. The money, although large, was seen by leading economists, the Federal Reserve chairman, virtually all Democrats, and many Republicans as necessary to reviving the struggling economy.

As of today, only half of this money has been spent ($400 million). The reason for this is that, even with the best of intentions, government can rarely directly inject money (and jobs) into an economy.

Politicians give primary importance these days to getting re-elected and the way to do this is through seeming to respond to the top needs of their constituents. When the first stimulus was passed, politicians could slap themselves on the back and say they'd addressed the problem of the weak economy. The press also moved on to other topics, rather than continue to follow up on just what this money had been spent on and how effectively that stimulus had resulted in jobs.

This week, the Associated Press, to its credit, did some investigative reporting. It looked at specific construction projects that were part of the first stimulus and how well they did at creating jobs -- and reducing unemployment -- in those counties. It turns out -- and their findings were validated by five economists -- that there was no correlation between dollars spent and those counties seeing a lower unemployment rate.

The president and his team continue to point to 1.6 million as the precise number of jobs which the first stimulus is responsible for saving or creating. However, the AP found that most economists agreed that it was virtually impossible to tie monies spent as part of the 400-page law to specific job outcomes in order to be able to cite a specific number of jobs created or saved.

The White House has also recently determined that they can identify certain jobs as being "stimulus-saved jobs" even if they were never at risk of being lost.

When it comes to coming up with new projects, such as repairing roads, it might take months from the time a bill is passed until a job actually begins -- and that's assuming that there are delays from zoning or other planning requirements, which is more often the case. Even when these government-sponsored projects start and jobs are created, they are so insignificant when compared to the other jobs that are being lost in those same areas.

Here are implications from this one study, as we prepare to hear politicians sell us on the idea of a second stimulus.

  • Just spending billions of taxpayer dollars on government programs that aren't defined is likely to be a wasted effort.
  • We should only spend money in areas which have been shown to clearly make an appreciable difference to lowering unemployment.
  • If you're going to start a construction project, it should have a definable purpose (as opposed to the "bridge to nowhere") and it should start immediately, not three years from now.
  • State support is likely (although, again, I've seen no hard studies on this) one effective way of keeping real jobs. Many states and counties are simply running out of money at the moment. If the federal government can keep a police officer on the job, where he or she would otherwise be unemployed, that's a tangibly positive outcome.
The federal government should be intellectually honest that it can do little to actually create jobs (at least permanent ones). Instead, its role must be to continuously support businesses to feel confident enough to create jobs themselves. At the moment, that confidence is lacking.

The honest truth is that I don't know how to help a 55-year-old father of five from Lexington, Ky., who just lost his manufacturing job, find his next job. He's probably not going to get "retrained" by the government and find another manufacturing job easily. He's certainly not going to be first in line to get one of the exciting-sounding "green jobs." I don't think any politician -- Republican or Democrat -- has any idea of what to do to help this guy.

But there are a lot of people like this out there today -- too far along in their careers to restart, with too little money to retire.

This guy is realistically on his own to find his next job. He needs a government to help increase the safety net of services like food stamps to help, and one to help businesses across the country to feel more confident, but he doesn't need another stimulus program that the politicians congratulate themselves about which leads to nothing for him.

This post has been republished from The Street.

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