Friday, November 5, 2010

New Leadership, New Thinking

On the surface the public sees the change in power, both in Washington and Harrisburg. Republicans gained control of both chambers in Harrisburg. On the national level they gained control of the House. But there is an important underlying fact in those gains. On the Democratic side there are many newcomers as well. The freshman class contains new thinking regardless of party affiliation. This class must realize that voter anger doesn't take long to develop. With the economy in such dire straits jobs must be the number one priority at this point. Before we turn to the government to create job growth we must ask government to stop hindering job creation.

In this Forbes magazine article Michael Noer makes this observation.

The most recent absurdity of the Great Recession is the $10 billion allocated by Congress to save 140,000 teachers' jobs in a bill nominally concerned with aviation safety. Well-intentioned though it may be, the measure is wrongheaded on two fronts. First, it's unclear that these jobs needed "saving"; indeed, some states are gleefully figuring out how to spend the unanticipated windfall. Second, federal stimulus spending of this sort can have only a short-term impact on employment. If we are serious about creating jobs, we need to rethink the problem from the start.

Government-backed paychecks come with a cost. The money to pay for the teachers or the extended unemployment comp or the public works project will, sooner or later, have to be extracted from the pockets of taxpayers. Anticipating that burden, taxpayers with money sit on it. Corporations shrink from hiring; consumers hesitate before buying.

This negative feedback explains how a stimulus program can backfire. Japan pays for training and other forms of help to those trying to scratch out a living but in doing so has swollen the population of "freeters," those under 35 without permanent jobs. Denmark, once hailed for its "flexicurity" system (state-subsidized programs offering temporary work to prevent layoffs, job training and up to four years of assistance for those without work), is lopping the program in half.

Here in America vast amounts of stimulus money and White House jawboning have done little to move the unemployment needle, frozen at 9.5%. Add in the people who have simply given up looking for a job and you get an unemployment rate of 16.5%. A third of this is a hard core of potential workers who have no realistic chance of finding a job in the foreseeable future.

The biggest question I hear is "How are they going to create jobs?" Most feel that the manufacturing jobs are gone for good. That position is a weak look at a complex problem. First, we need to make it more attractive for business to produce goods and services in the United States, rather than overseas, using U.S. workers, rather than foreigners. The skilled labor needed by many U.S. companies is not readily available in certain countries while readily available in others.

Just-in time manufacturing, most notable in the auto manufacturing industry, gives a glimpse to a foundation for spurring thoughts on the need to bring overseas jobs back.

Everyone will talk tax breaks. But tax breaks will only be effective if they are closely linked to real job creation. The stimulus package failed on that benchmark. There are those that say eliminating taxes creates profit and there are few that would sacrifice new found profit for labor.

Here is what the corporate leaders have to say to dispell that statement.

“A pro-manufacturing tax policy must first acknowledge that when Congress raises taxes, it makes manufacturers in the U.S. less competitive. Reduce the corporate tax rate to 25% or lower without imposing offsetting tax increases.” Result: 2 million new jobs before the end of this decade.”

“Enact tax provisions that will stimulate investment and recovery, including: Strengthen and make the R&D tax credit permanent. The Milkin Institute’s ‘Jobs for America’ analysis reported that increasing the R&D tax credit by 25% would enhance U.S. innovation, boosting GDP by $206 billion and creating 270,000 manufacturing jobs.”

“Allow businesses to accelerate depreciation of capital purchases more quickly. The Institute for Policy Innovation has estimated that every dollar in tax cuts for business depreciation adds about $9 in GDP growth. Over the past 60 years, there’s been a strong correlation between domestic job growth and business investment. Any policy that permanently allows businesses, particularly manufacturers, to expense capital purchases in the year they are made will go a long way toward putting more investment funds—and consequently more jobs—into the marketplace.

“Take the threatened tax increases off the table. The tax increases threatening businesses are huge, especially damaging to the thousands of small businesses which file as individuals. The automatic increases in tax rates on upper-income earners, dividends and capital gains are already a huge disincentive to business activity, and the Obama Administration’s proposals for additional tax increases aimed directly at business seriously compound the problem.”

“Impose a moratorium on new regulations. Many executive branch agencies, most particularly those within the Department of Labor, have embarked on what seems to be a vendetta against American businesses, threatening them with dozens of new and costly regulations.”

Regulatory Overkill: “Taken collectively, the regulatory activity now underway is so overwhelmingly beyond anything we have ever seen that we risk moving this country away from a government of the people to a government of regulators,” Chamber President Thomas J. Donohue said in a speech last week before a Chamber-sponsored Jobs Summit. He called on the Obama Administration and Congress “to immediately put a stop to the cascade of new regulations that is the principal reason businesses are so reluctant to make investments and create jobs.”

“OSHA is particularly aggressive and offensive, proposing costly and cumbersome new regulations based on their assumption that businesses will ignore workplace safety unless and until they are inspected.”

“Moving toward a competitive tax structure that creates certainty for businesses by temporarily extending all of the tax relief passed in the prior decade and reducing the U.S. corporate tax rate. In one bold, swift move, this would substantially boost investor, business and consumer confidence and would infuse our economy with fresh momentum.”

“Controlling the rising deficits and debt by generating additional federal revenues and restraining spending. As much as $1.7 trillion in revenue could be generated over 10 years through numerous oil, gas and shale leases on our lands and off our shores.”

“Tax reform, along with spending restraint, sound money, free trade and a rational regulatory policy would lead to a period of exceptional prosperity and asset appreciation. There’s no better way to increase jobs than to create a pro-growth economic environment.”

Dr. Irwin Kellner offers this perspective about cooperation between Washington and the states.

There are other measures that Washington should consider as well. Since the federal government can run a deficit while states cannot (at least over an extended period of time), Washington should step up its grants to states and local governments. Most of their budgets are in the red because of the jump in such costs as Medicaid and pensions, so they are cutting spending and raising taxes, thus taking out of the economy much of what Washington is trying to put in. As soon as Bush enacted his tax cuts Fast Eddy Rendell couldn't move fast enough to raise our income tax in Pennsylvania. Where was the gain?

Lets start moving America forward. Let's bring back Ronald Reagan's "Morning in America". Only naysayers like Steve Corbett would call it Mourning in America.

1 comment:

Alex White said...

Government can never "create jobs." They can regulate and tax - that's it. the private sector has to create jobs with innovation. We need solutions to problems that can create real, sustainable demand.

I like this group in SF: they're solving construction costs, new schools and clean, affordable energy.

Their video made me feel better about America. Government has never done that.