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Restarting the Job Machine Why Stimulus 2.0 might backfire

• News Week
But many other economists fear that exploding federal debt—incurred partly to pay for more spending and tax cuts—could trigger a new crisis that would destroy jobs
Almost everyone agrees that the outlook is bleak. Since the recession's start in December 2007, about 8 million payroll jobs have disappeared. More will go. With the labor force expanding by more than 1 million workers annually, economists Joseph Seneca and James Hughes of Rutgers estimate that even the job growth of the 1990s (2.4 million a year) wouldn't reduce today's 9.8 percent un-employment to 5 percent until 2017. Ugh.
The Keynesian solution (after economist John Maynard Keynes, who died in 1946) holds that government activism can generate more jobs. That's the theory behind the $787 billion "economic stimulus" passed in February. Many ideas are circulating for Stimulus 2.0, though the controversy over Stimulus 1.0 suggests it will be relabeled.

Larry Mishel of the liberal Economic Policy Institute wants more aid to state governments, a further extension of unemployment insurance (now up to 79 weeks), and a tax credit for companies that create new jobs. One proposal would give employers a $7,000 credit for each additional worker hired (over some base period). Timothy Bartik of the W.E. Upjohn Institute for Employment Research thinks such a credit might create 2 million jobs. The budgetary cost could be $40 billion or higher. One drawback: two thirds of the credit's cost might go to firms that would have hired anyway.

The rap on Stimulus 1.0 is that it hasn't yet—as promised—reduced unemployment. Boosters retort that unemployment would have been worse without it, and more than half hasn't even been spent. Detractors argue that the benefits of "stimulus" packages are overrated. Underlying this dispute is an academic argument about the "multiplier": whether increased stimulus spending and tax cuts translate into large increases for the overall economy, or whether the effects are offset. Consumers might save most tax cuts, or bigger deficits might raise interest rates and crowd out private borrowing.

2 Comments in Response to

Comment by Powell Gammill
Entered on:

Across the board tax cuts would go a long way towards job creation -- but Keynesians want targeted tax cuts so "good" jobs are being created. Cutting regulations and licensing burdens would be of huge benefit, but more so at local levels.  Government spending never creates "jobs" that last beyond the government spending.  Then the lobbyists are back at the trough to keep these "jobs" going.  This tax drain sucks the life out of real job creation.  But it isn't about creating jobs, it is about continuing to loot the apparent complacent earner by the nonworking ruling class.

Comment by Ed Price
Entered on:

The steps for restarting the job machine are as follows:

1. Get rid of all personal taxes - taxes on individuals. This will give people the incentive to work, because the rewards will be greater.

2. Make the only Federal taxing area to be the import/export taxing area. The Federal Government will need to get its money from somewhere, just to exist. Natural supply and demand will make the FG regulate its E/I taxing at a rate that will allow reasonable E/I without taking away from jobs in the US.

3. Allow no foreign ownership in the US without US citizenship, especially of businesses. And allow the individual states to add their own citizenship requirements.

These 3 things alone would bring the jobs back to America. There are others that would help, like taking away the Governmental control from some of the special interest groups, especial the military/industrial complex.

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