The U.S. unemployment rate has hovered around 10% for months – with no real signs of improvement. As American workers grow increasingly impatient, the U.S. government is running out of options to help the job market.
But with midterm elections approaching, U.S. President Barack Obama is trying to show voters there's hope in resolving the stubbornly high unemployment rate. Last week he unveiled a six-year infrastructure plan that would invest billions in transportation projects and create a "substantial" number of jobs.
The government would supply $50 billion off the bat to rebuild 150,000 miles of roads, 4,000 miles of rail and 150 miles of runway, plus modernize the air traffic control system. The plan also sets up a government-run infrastructure bank to finance the projects, combining tax dollars with private investment for funding.
"[The bank] will change the way Washington spends your tax dollars, reforming the haphazard and patchwork way we fund and maintain our infrastructure to focus less on wasteful earmarks and outdated formulas, and more on competition and innovation that gives us the best bang for the buck," President Obama said.
Experts estimate the total six-year cost could run from $350 billion to $500 billion, but President Obama promised the expenses would not be tacked on to the record-high U.S. deficit. To pay for the plan he proposed eliminating business tax cuts and subsidies for the oil-and-gas industry, saving $200 billion over two years.
But wary voters are likely to question any program that could increase government spending, despite President Obama's pledge to find the money.
Republicans, eager to shoot down anything that could garner support for Democrats before midterm elections, have been quick to attack the plan. Senate Republican leader Mitch McConnell, R-KY, referred to it as a "last-minute, cobbled-together stimulus bill."
"We don't need more government ‘stimulus' spending – we need to end Washington Democrats' out-of-control spending spree, stop their tax hikes, and create jobs by eliminating the job-killing uncertainty that is hampering our small businesses," said Republican House of Representatives leader John Boehner, R-OH.
Republicans are poised to gain a substantial number of seats in Congress in November's elections, and have been loudly criticizing President Obama's unsuccessful stimulus spending and failed attempts to lower unemployment.
Transportation experts say 35,000 jobs are created for every $1 billion that's invested in transportation construction. That means that this plan could offer a significant boost to employment, although not until 2011.
U.S. unemployment remains at 9.6% – a rate that some economists fear could continue to grow. Bank of America Merrill Lynch (NYSE: BAC) analysts expect unemployment to peak at 10.1% next year.
Many experts agree that President Obama has few options to choose from to lift the weak job market, and without Republican and voter support it could be too late for President Obama to get very far with any of his proposals.
"After the administration pledged that a trillion dollars in borrowed stimulus money would create 4 million jobs and keep the unemployment rate under 8%, their latest plan for another stimulus should be met with justifiable skepticism," said Rep. Mitch McConnell.
This prompted last week's installment of the Money Morning "Question of the Week": How do you feel about the U.S. government's proposals to boost hiring? Do you like the proposed transportation plan? Which measures are most likely to fall short of the government's promises and which do you think can succeed? What else would you like to see the government do to lower the unemployment rate?
Following are some reader responses that show both frustration toward continued government spending, but also support for a business-minded president dealing with one of the worst financial periods since 1929.
Increase Efficiency, Not Spending
Government funding of jobs projects appears to be a very inefficient means of increasing employment. You quoted transportation experts who say that, "35,000 jobs are created for every $1 billion that's invested in transportation construction." If we divide 35,000 into a billion, we find that this works out to about $28,500 per job, without accounting for overhead, waste, construction materials, withholding, etc., so I can only assume that most of the jobs that would be created would be similar to the census jobs this last summer. We are not talking about full-time steady employment here. Nice to have for a couple of months maybe, but not in any way the kind of steady employment that gives people confidence to plan for the future.
In reality, I would guess that for every billion dollars the government spends, we wind up with about 4,000 people employed full-time. If these people are hired by private employers, it is because the employers expect them to produce more than a billion dollars worth of gains or profits for the company, but because the government has no such objectives, the jobs themselves are likely to be mostly or entirely unproductive. That is, we take productive dollars from individuals and companies, reducing their productivity, and use those dollars to hire people for unproductive jobs, thus reducing the productivity of the country as a whole. This can't be good.
So in conclusion, I say that the government should not throw more money at jobs programs. If they really want to encourage companies to hire more people, then reduce the regulations that burden companies every time they hire someone, and reduce the regulators who have to find something wrong on every inspection visit, or their bosses might think they weren't doing a good job. One of the big problems with the taxes that we pay is not just that they are so high, but that so much of the money that the government takes from us is then used to hire people who harass us and force us to spend more money on unnecessary activities. Thus, these jobs are not just unproductive, but are anti-productive. If we could eliminate some of these unnecessary items, and the costs of funding people to enforce them, then we might really see some economic growth!
– Gordon F.
"Spending Spree" Doesn't Mean Profit
I have been in business for 30 years; I have started more than 20 companies, some successful, some not, and never have I found an instance where a tax credit of any type translated into a profit!
Small businesses have been stuck in purgatory, mired in a credit contraction where access to capital is just not there! The notion that an infrastructure spending spree will significantly impact unemployment, especially fueled by an increase in taxes on our energy sector, doesn't make sense. We would be robbing Peter to pay Paul and where would we be best served? The major driver for employment is and always will be the small business community, and this segment of the economy has been left behind.
However, if one were to look at the fastest area of growth in our present economy – the growth of government – the problem with the present administration's effort at job creation would become crystal clear. How can it be that government employees make more than their counterparts in the private sector? How can it be that the government is somehow more efficient in managing its resources when history has time and again demonstrated the opposite?
It is time for reality to re-assert itself and the average American to wake up and ask the necessary questions of their elected officials, make them accountable to their responses, and exact a commitment that they be held accountable to the laws that we as citizens are!
– John H.
Fund Shuffling Doesn't Work
President Obama's plan to spend $50 billion is just more government spending which in reality is either creating jobs with borrowed money or money taken out of the private sector.
The first stimulus package was supposed to have had a highway, bridge, rail, etc. component. All of that has not yet been spent, so why again try to hoodwink the American public into thinking the "government" is taking care of them.
If President Obama would freeze government spending, roll it back to 2007 levels and then get out of the way – as in stop cap-and-trade, cancel Obamacare, extend Bush's tax cuts – our economy would take off.
Wake up America, we are in perilous times, we the people need to use the power of the voting box. I say this as contacting our representatives certainly doesn't seem to do much anymore, so it's time to clean house and get people who understand the plight of the small business man, the average wage earner and the like into Congress.
Of course, on a bigger picture the size of government should be reduced and we would be allowed to keep more of our money.
Oh well, one can at least hope.
I strongly support this proposal with much confidence that it will create jobs. The consensus that small businesses are the engine that drives the economy prevails and not at the whim of politician's selfish individual career interest. Good for America.
Washington Misses the Root of the Problem
Well, if the infrastructure needs repair, it needs repair. Of course, the appropriate taxes should be used – gasoline taxes to repair roads, etc. Don't expect any meaningful recovery to come out of it, though. The jobs will only be temporary since they won't be driven by the private sector. It will be no more successful in ending this recession/depression than the similar spending in the 1930s was in ending that depression. If you want to create significant, meaningful, private sector jobs, you need to understand the problem, which Washington obviously doesn't. The economy needs a real boost.
Jobs are lost due to a loss of consumption. There is a limit to how much debt the middle class can take on. When that limit is reached, the debts must be dealt with and consuming stops. Without consumers, employees are laid off and/or businesses go under. This isn't rocket science. The powers that be understand this. That's why they came up with their stupid little $500 and $800 tax rebates, which didn't do a lot of good (and this is the part that Washington doesn't seem to get) because the middle class debts are in the tens of thousands of dollars. Yep, it's going to take a long time for all the debt to work its way out of the system, unless…
We modify the way we do home loans, just a little. PIMCO's Bill Gross is on the right track when he suggested lowering Freddie Mac and Fannie Mae loans to 4%. Still too high, and, like Obama's lame housing plans, it doesn't reach everyone, including prospective homeowners. Instead, allow all housing lenders to borrow (the amount that they are going to lend) from the government for the same length of time that they will be lending it, and give them a 2% float, e.g. if they are going to lend $200,000 for 30 years at 3%, they get to borrow the $200,000 from the government for 30 years at 1%.
Want to give the economy a good shot in the arm? Open up a six-month window for anyone who wants to get into the market (new buyers) and for all homeowners who are not delinquent in their mortgages to refinance at 2.5% over 30 years. You'd be surprised how affordable homes are if interest rates are low enough. This solves two major problems: It stabilizes and revives the housing market, ultimately getting rid of all the toxic assets still poisoning the financial markets. At the same time, it puts significant money into the hands of the middle class – without giving anything away. That money can be used to reduce their debt significantly and start consuming again. Oh, and also – creating more private sector jobs. Just give one of these loans per social security number, this isn't intended for home flippers or other speculators. We don't want to create another housing bubble.
It should be obvious that this will also increase government revenues, first at the federal level, but eventually at all levels.
– The Road Warrior
Look at What He's Working With…
As one who studied economics it's time the business community cut President Obama some slack. He has and is making the right moves. This country has never suffered a hit like this since 1929.
If the Republicans were in control it wouldn't be the "Great Recession," but the "Greatest Depression!"
One Plan, Three Big Benefits
I am strongly in favor of a government jobs program like this, to put people back to work and, at the same time, work to rebuild our crumbling infrastructure that has been
so long ignored. It's a twofer!
Actually, it's a threefer, because besides providing income and promoting self esteem to those employees, it would reverse a downward trend.
What is being overlooked is the mathematical quirk that when something declines, like employment perhaps, it takes a lot more to bring it back up than it took to lower it. So I
think it is very important to stop the slide.
For example, if jobs decline say, 10%, they have to then increase by 11% just to get back to where they were. If they decline by 15%, they have to then increase by 18% to get back.
– Rich W.
[Editor's Note: Thanks to all who responded to last week's installment of the "Question of the Week" feature regarding government incentives for the U.S. jobs market. Be sure to answer next week's question: How do you think the battle over the Bush tax cuts will turn out? Which party do you think will manage to get their way? Do you think the government should allow tax cuts to expire for the richest taxpayers? Or do you favor a tax increase for everyone as a way of slashing an out-of-control deficit? Are you preparing for a change in U.S. tax policy next year?
Send your answers to firstname.lastname@example.org!
Is there a topic you want to see covered as a Question of the Week feature? Then let us know by e-mailing Money Morning at email@example.com. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.
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