| Sunday was a beautiful day: warm and sunny. A great park day. And so it was that my brother, sister-in-law, nieces and my beloved pup were at the local park. Whenever I mention this park, the next words that fall out of my mouth are "20 million dollar bond issue." I love the park, with its multiple playgrounds (one all-access), putting green, min hatch shell, playing fields, dog field, walking trails and pond. It's lovely. It's wonderful. They even have free biodegradable doggie poop bags. $20 MILLION DOLLARS. My brother, the economist, and I talked economics. We talked about how when the park was envisaged, the township was flush. Now, we're running at a deficit because our sole sources of income are the direct property tax and the (property) transfer tax. Both of which have not collapsed, but are running well behind where they were two years ago. My brother the economist believes in economic models. He's with the majority here: the Dow goes up, the S&P goes up, business conditions are improving and therefore we are coming out of recession and things are looking up. I've been yelling that that model is wrong for close to 30 years. The importance of whether or not the standard economic model is correct has huge political implications for the Obama administration, as well as for both the Democrats and the Republicans. The stimulus program enacted in February was based on the logic of the CW economic model. The Republicans, in wanting lower taxes as the sole driving force for an improved overall economy, also depend on it. The two sides have competing interpretations of the model. If the model is correct, either approach will work to turn the economy: maybe at different speeds, but either would have a positive impact. But if the model is wrong, then neither approach will work, and will have huge implications for politics and elections going forward. When the assumptions of an economic model are vastly incorrect, the economy changes radically. The most recent example of a wrong economic model and its aftermath is the Japanese lost generation: in some ways, that engine has never recovered. In the 1930's in the US, it was necessary to turn the model on its head to get people back to work, strongly regulate banks and other businesses, and get the people fed and working. The emphasis of the current model says, in a nutshell, that if business is strong, the economy is strong. But a number of contrarian, left-wing economists say that's not true this time. The contention is that the only useful change is a true jobs program. The stimulus program is not a true jobs program: it instead accorded funding to the states to hand out to companies they picked to do work, as well as some direct funding for government-service jobs (police, teachers) and direct aid (tax credits for home energy improvements, cash for clunkers, increased dollars for the unemployed.) More after the jump. |
The flaw in the logic of the standard economic model is that 70% of the economy is consumer driven. The models don't look at consumption as much as they look at production. So, for example, when GM builds a car and ships it out to a dealer, it books the profit as the truck leaves with its delivery, NOT when the car is sold. Eventually, for the model to hold, people have to buy the things produced, and purchase the services offered, or business will make another major contraction. Unemployment is the highest it has been in at least a generation. Even for people with jobs, the median number of work hours has decreased, and statistically, pay increases have been negligible. Manufacturing jobs have been going overseas for years, and now, it looks like 40 million high skill jobs might be going with them. Princeton economist Alan Blinder predicts that these choice jobs could be lost in a mere decade or two. We speak of computer programming, bookkeeping, graphic design and other careers once thought firmly planted in American soil. For perspective, 40 million is more than twice the total number of people now employed in manufacturing. Blinder was taken aback when, sitting in at the business summit in Davos, Switzerland, he heard U.S. executives talk enthusiastically about all the professional jobs they could outsource to lower-wage countries. And he's a free trader.
About the only jobs we KNOW have to stay here are those that require direct human contact: serving food in restaurants, for example. You can outsource the crops and processing, but you can't successfully throw a bowl of soup from India and have it land on a table in Peoria. Also garbage collection, surgery (although not all other forms of health care), and direct services like on-site plumbing and electrical. You can even construct all the parts of a house in another country and then simply do the assembly on-site. What happens if the Obama administration can't find a way to get unemployment back down to 7% or below, even if they can't get to the standard 5% full employment level? My fear is that we end up with Mike Huckabee, or some other populist evangelical, as president. I look at the 2012 field and scoff at the chances of Spunky, Tim Pawlenty, Rudy Giuliani, Mitt Romney and most of the others. But take someone who goes on the trail if unemployment is still in double digits, with the U6 having cracked 20%, and he talks jobs, and nothing but jobs. The side dish would be increased payments to those who are then structurally unemployed. Doesn't matter that it wouldn't be true, it could SELL. I'm not talking about someone who speaks to business, like a Mitt Romney - I'm talking about someone like Mike, who will speak to regular people and say "elect me, and I'll make sure YOU have a job AGAIN within 90 days of taking office." I believe the solution is for the White House to use the remainder of the stimulus program as a direct jobs program, similar to the alphabet soup of the 1930's, with an overlay of the 1970's CETA program. Don't give the money to the states, directly employ people. That CETA money, if you're unfamiliar, would go to businesses as a direct support to hire someone. For example, you hire someone and the government pays 30% of the person's salary provided you keep them on the payroll for two years, and teach them the skills necessary to accomplish the job. The business gets half the money as a monthly stipend, and the remainder as a check at the end of 2 years. For direct government employment, set up a Jobs Corps and pay 100% of the salaries of people to undertake specific tasks. I'm thinking along the lines of demolishing abandoned housing in urban areas and building new ones. Direct road work for those NOT YET road-ready projects. Therefore that road work would include work not only for construction, but also design, as well as production of materials and tools to fix said roads. I'd look at a true energy program: government workers who would be paid to install residential solar panels, for example. The homeowners pay for the panels, but the government covers the cost of installation, thus decreasing the cost still further from the savings current tax cuts allow. I'd also consider a service program. The idea that young people getting out of high school could receive, free of charge, training in the trades with the understanding that they'd have to work for the government for the following four years. This would bring us new carpenters, electricians, plumbers, and other workers whose jobs could not be outsourced. I would also do away with all H-1B visas. They allow foreigners in AT LOWER WAGES than are paid to Americans for high skill jobs. Finally, I'd put a huge tax penalty on those companies which outsource IT jobs, call centers, manufacturing facilities, and everything else that costs us jobs. Protectionist? Sure. But if we don't find a way to get people back to work, goods and services don't get bought. The DOW can hit 15,000 or 20,000 and it doesn't get the unemployed, the underemployed, and people in fear of losing their jobs back to shops and restaurants. The jobs issue is the ultimate schism between doing for Wall Street and doing for Main Street.
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