Posted by
Travis on Saturday, January 31, 2009 10:35:09 AM
A STRAIGHT-FORWARD SOLUTION TO OUR ECONOMIC CRISIS – AND WHY AMERICAN POLITICIANS WILL NEVER LET IT SEE THE LIGHT OF DAY
Times are hard. They are uncertain. There is no denying that the country is at a cross-road. We have a new President who campaigned on hope and we Americans have had to reassess our personal financial priorities. We still sit dangerously close to the cliff and the more we struggle to back away from the cliff, the more perilous our future seems. The debate on whether or not a stimulus package will be written into law is moot. That debate is over, done, finished. But the debate on how to engage in stimulus is still (barely) on – though given the House’s passing of the bill yesterday, with few legislators even reading it to boot, time is running out for substantive debate.
Here’s the good news: I have a solution! It’s simple. It’s straight-forward. And it is exactly for these reasons that it will never be seriously considered by the Legislative or Executive branches. It’s because I am not special and, therefore, my ideas are not worthy. I am just an ordinary citizen who is frustrated with the politics, the ear-marks, the ridiculous spending…the pork. We’ve already spent $350B on the financial system and look where that’s gotten us – we earned the right to issue another check for $350B more and the banks still think that’s not enough. Meanwhile, all of us average Americans – the taxpaying citizens of the United States of America – are losing our jobs, our homes and our financial security at an alarming rate. We need a solution that focuses on Americans and their families….at least that’s what the politicians keep telling us (Lou Dobbs would be very proud).
Before I get to my solution, let’s recap the facts:
• 2.5M jobs lost in 2008
• Median household income in 2007 was just over $50k
• Median income in 2007 was about $40k (roughly splitting the difference between the median income for men and women)
• Nearly every Congressperson in the US has said that the most important part of any stimulus is to generate lasting jobs – so let’s assume that’s the goal of all the “stimulus”
• The President has called for politics to be put aside and wants to generate or preserve 3-4M jobs
• The Legislature is en route to passing an $800-900B (yes, billion with a “B”) stimulus package
• $800B is equal to eighty-thousand, one-million (as my 4 year-old would say) and that’s a LOT of money!
Using these straight-forward figures (I would welcome substantive opposition on these claims from any member of Congress), my solution would create 3M jobs in 90-180 days and cost about 1/4 of the “stimulus” bills that are making their way through congress. I defy any stimulus package on Capital Hill to come within spitting distance of my plan. So enough already, right? We’re Americans, we like instant gratification and you want the solution. Here it is: the government should utilize “stimulus” money to create lasting jobs. Okay, doesn’t sound that revolutionary, does it? But seriously, how will replacing 34,000 functioning government vehicles with more energy efficient vehicles (at a cost of $600M in the most recent stimulus bill) create jobs? Sure, it will probably create some manufacturing jobs. At least, until the cars are delivered and the factories shut down again. I don’t understand how the government buying things they don’t need is sound economic theory that will create jobs. Back to my plan. Let’s use the stimulus money to fund the hiring of 3M Americans. How? Simple. Allow small and mid-sized businesses to hire people and use government money for their salaries. That’s it. That’s the big one (random homage to Christmas Vacation). Not a $3k tax credit, not an “incentive”, I am talking about a flat-out assault on unemployment and this recession.
Here’s how it works:
I am a small business owner. Due to the credit market, I cannot hire an employee who would be able to help me grow my business. If I could hire an employee at a nominal cost to my business, I would hire them in a heart-beat. If 1.5-3 million small to mid-sized businesses (who account for more than 80% of all US jobs) hired 1 or 2 people each in the next 90-180 days, unemployment would be less than 5%. People would be employed and would spend money. The money they spend would drive demand for the products and services offered by the small and mid-sized firms who hired the 3M workers. The workers would pay taxes – gas taxes, income taxes, sales taxes, etc – and the state governments would have more tax revenue. Mortgages would be paid, defaults would go down, property values would stabilize, 401k plans would have more money, they would buy stocks, the stock market would stabilize and on and on. Plus, the workers would no longer be receiving unemployment benefits, saving the state and federal governments billions of dollars. And the cycle of life would be restored. Simple.
The cost:
Back to my facts for a moment. If the government paid for 3M people to be hired immediately at an average salary of $50k (25% higher than the median individual salary), and fully covered their employment costs for 2 years, it would cost a paltry $300B. Okay, that’s not a small amount of money, but it’s less than the interest we will pay on the $800B plan our Congress is working on. Not to mention, we will get these people off of unemployment which, in my home-state of California, costs the Federal and State governments more than $21k per year per person. So in actuality, this plan would cost less than $250B over two years.
The benefits:
I think these are obvious. 3M people get back to work, small and mid-sized businesses have the ability to hire people who help grow their businesses to a point where the revenues “catch up” with their additional employee, unemployment costs plummet, tax revenues skyrocket and state and federal deficits are significantly smaller. Meanwhile, we pull out of the recession quicker, restore confidence and begin a new chapter in American history.
I can hear the naysayers already – what happens after 2 years? How do we decide which companies get the money? How will we stop people from abusing the system? I have a couple of thoughts (and I am sure you do, too).
A. We phase out the government paid portion over time – by month 16 of employment, the employer is covering 10%, then 20%, etc of the wage until the employee is fully “transitioned” to the companies payroll and away from government.
B. Companies who have not laid off employees, who have been in business at least 6 months, who have no tax liens against them could qualify for the program.
C. The legislation should contain very harsh enforcement mechansims for fines if fraud is found.
I think it stands to reason that thousands of government employees would need to be hired for the implementation and protection of this program – but we’re trying to get people hired, right? Some details are TBD by the legislature and in the end, the details will get worked out and they will protect against fraud, protect against a relapse, protect against mass lay-offs in 2 years. The fundamentals of the plan are sound and my plan will work to immediately create jobs and restore confidence at a significant cost savings…. Isn’t that what the stimulus is all about?? Sadly, our Congress will never let this idea surface. They can’t. There are too many people who are owed favors, too many special interests vying for our money, too many places Congress wants to manipulate the market in favor of their contributors and supporters. Sadly, the simple answer is right in front of us and our Legislature will never let us see it, they’d rather spend $1.2T (yes, trillion with a “T”) on a stimulus plan that no one believes will work….they just want to do something and line the pockets of their supporters in the meantime. And they hope that we – the simple taxpaying American citizens – will line up and follow.