Although it was labeled and hyped as a
"jobs plan," the new $447 billion initiative announced
last night by President Obama is
merely another government stimulus program in disguise.
But semantics are of supreme
importance in American politics...some could argue that word choice
is the only thing that matters.
As a result, despite the fact that this
plan bears no substantive difference
from previous stimulus
bills, the President never
once mentioned the word
"stimulus" in his hour-long
speech. But a rotten
banana by any other name still stinks.
Like all previous stimuli, this round of borrowing and spending will act as an economic sedative rather than a stimulant. Running up the deficit
in the short-run will not
grow the economy, but will merely dig
it into a deeper hole.
A year from now there will
be even more unemployed Americans than there are today, likely resulting in additional deficit financed stimulus that will again
make the situation worse.
The President asserted that the spending in the plan will be "paid for" and will not add to the deficit. Conveniently, he offered no details about how this will be
achieved. Most likely he will make
non-binding suggestions to future congresses to "pay"
for this spending by cutting budgets five to ten years in the future. History is absolutely clear on one point: politicians
never pass cuts promised by prior politicians. In other words...the check is in the mail. So I will make the fairly riskless assumption that the plan will be financed by deficit spending. If so, the negatives associated with greater deficits will overwhelm any perceived benefit the spending will generate.
President Obama claims he wants
to put money into the pockets
of American consumers. The problem
is the government's own pockets are empty. In order to put money in
the pocket of one American, it
must first pick the pocket
of another. The problem is that it
takes more from the pockets it picks
than it puts into the pockets it fills.
In the meantime money to fund the
stimulus has to come from somewhere.
Either the government will borrow it
legitimately, or the Federal
Reserve will print. Either way, the adverse consequences will damage economic growth and job creation, and lower the living
standards of Americans.
There can be no doubt
that some jobs will in fact be created by this plan. However, it is much
more difficult to identify
the jobs that it destroys
or prevents from coming into existence. Here's a case in point: the $4,000 tax
credit for hiring new workers who have been unemployed for six months or
more.
The subsidy may make
little difference in effecting the high end of the
job market. An employer will
not pay a worker $50,000
per year simply to qualify for a one-time $4,000 credit.
But the effects will be felt on minimum wage jobs where rather than expanding
employment it will merely increase
turnover.
Since an employer need only
hire a worker for 6 months to get the credit, for a full time employee,
the credit effectively reduces the $7.25 minimum wage
(from the employer's
perspective) to only $3.40 per hour
for a six month hire. While minimum wage jobs would certainly offer no enticement to those collecting unemployment benefits, the lower effective rate may create some opportunities
for teenagers and some low
skilled individuals whose unemployment benefits have expired. However, most of these jobs will end after six months so employers can replace those workers with others to get an additional tax credit.
Of course the numbers get even
more compelling for employers
to provide returning veterans with temporary minimum wage jobs, as
the higher $5,600 tax credit effectively reduces the minimum wage to only $1.87 per hour. If an employer hires a "wounded warrior" the tax credit is
$9,600 which effectively reduces the six month minimum wage by $9.23 to negative $1.98
per hour. This will
encourage employers to hire
a "wounded warrior" even if there is nothing
for the employee to do. Such
an incentive may even encourage such individuals to acquire multiple
no-show jobs from numerous
employers. History has shown that when
government creates incentives, the public will
twist themselves into pretzels to qualify for the benefits.
The plan creates incentives for employers to replace current
minimum wage workers with new workers just to get the tax credit. Low
skill workers are the easiest to replace as training costs
are minimal. The laid off workers can collect unemployment
for six months and then be hired back in a manner that allows
the employer to claim the credit. The only problem is that the former
worker may prefer collecting extended unemployment benefits to working for the
minimum wage!
The $4,000 credit for hiring the unemployed as well as the
explicit penalties for discriminating against the long term unemployed will result in a situation where employers will be far more likely to interview
and hire applicants who have been unemployed for just under six months. Under the law, employers would be wise to decline
interviews with anyone who has been unemployed for
more than six months, as any subsequent decision not to hire could be met with a lawsuit. However, to get the tax credit they
would be incentivized to interview applicants
who have been unemployed
for just under six months. If they are never hired there
can be no risk of a lawsuit,
but if they are hired,
the start date can be planned to qualify for the credit.
The result will simply
create classes of winners (those
unemployed for four or five months)
and losers (the newly unemployed
and the long term unemployed).
Ironically, the law banning discrimination against
long-term unemployed will make it
much harder for those people to find
jobs.
Another problem is
the President's intention to help under-water homeowners
refinance their mortgages
with lower rates. While this will
certainly be good for the
borrowers, it will be horrific
for the banks holding the loans.
The borrower's gain is simultaneously offset by the bank's
loss. This will further impair the solvency of our banking sector,
exacerbating the losses
and failures when rates rise, thereby increase the costs to taxpayers of the next round of bailouts.
Moving from the sublime to the ridiculous, the President claims
his payroll tax cuts will
not endanger the Social Security Trust Fund, as the government will replace the lost
"contributions" with transfers
from general revenue. In other words, the government will borrow money, put it in a phony trust fund, then borrow the same money back from the trust funds and spend it on the stimulus. It is amazing the theatrics the government will go through to maintain the
illusion that trust funds
actually exist. The tragedy is that
Americans continue to buy
the charade and even heap
scorn on those, like Rick Perry, who has the temerity to point out that the emperor is naked.
The truth of course is that no real economic growth or job creation is going to occur
until the failed policies of both Obama and Bush
are reversed. In his
speech the President mourned
the death of the American dream.
Obama should stop killing
it. To revive that dream we need
to revive the American spirit that produced it in the first place.
That means returning to our traditional values of limited government and sound money. Unfortunately we are still headed in the wrong direction.
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