Cincinnatus BLOG *** Political Commentary - Social Commentary

Obamanomics - a “Bush” league plan for job creation. Job creation was tepid during the Bush years and it is likely to be even less robust in the Obama years.

The respected Blue Chip economic forecasters, expect the unemployment rate, which surged to 8.5% last month, to peak at 9.6% in first quarter 2010. For the unemployment rate to fall, we must not only increase the number of jobs, but that increase must exceed the expected increase in the size of the labor force. In other words, merely increasing the number of Americans working will not necessarily decrease the unemployment rate. Today there are 154 million Americans in the labor force and just to maintain the status quo, 2.0 million new jobs must be created annually (a 1.3% increase).  Just to stand still, we need 167,000 new jobs every single month.

The $800 billion Obama Stimulus Plan was sold to the American people as a plan to create untold infrastructure jobs. If fact, President Obama said the stimulus plan would save or create 3.5 million jobs in the next two years. Sounds good, but to prevent the unemployment rate from rising even further we need 4 million new jobs every two-years. I guess nobody told the new kid from Chicago that he’s now in the big leagues and “Bush” league solutions just won’t cut it. To make matters worse, in typical political bait and switch fashion, less than 10% of the stimulus money was actually allocated to infrastructure projects. Reengineering American society into some vague new order sounds lofty and idealistic, but Mr. President in the real world we need real jobs.

Every politician pays lip service to the oft-stated axiom - “small business creates 70% of the new jobs in America”. Then promptly ignores it when formulating policy. Rather than merely paying lip service we should take stock of our assets and leverage them to create the 15 to 20 million new jobs we will need over the next 5 years.  Here are some of my suggestions.

As the world’s most inventive country we have the unique opportunity to “patent” our way out of the current recession and thieve in the 21^st century global economy. What should we export to create high paying permanent jobs and redress our balance of payments?  Ideas.  It’s what we do better than any other country. One country, the United States, accounts for more than one-third of international patent applications. It’s time to leverage what we do best, innovate, and create the jobs we need for today, tomorrow, and decades to come.

In light of the above, what should a jobs creation plan look like?

1.     Entrepreneurial Incentives - In the short run we should help finance innovative ideas in all areas, including green technology, telecommunications, biotechnology, nanotechnology and all other embryonic inventions that will improve our lives. Since so much capital is sitting on the sidelines in Treasury Bills, let’s suspend future capital gains tax on any investment that is made in new technology for the next year. We have absolutely nothing to lose. If capital stays on the sidelines we will create no jobs and collect no additional taxes. If, however, the money is invested, we could create hundreds of thousands of permanent jobs and collect income taxes from every employee rather than paying them unemployment benefits.

Yes, we can create jobs without spending the taxpayer’s money and simultaneously help all those budding entrepreneurs currently starving for capital. Critics will say, “another tax cut for the rich”. The potential loss of capital gains taxes 20 or 30 years hence when these entrepreneurs sell their companies is insignificant when discounted to current dollars, literally pennies on the dollar.

2.     Infrastructure - Projects that improve our fundamental infrastructure, such as a 21^st century electricity grid will pay back for generations. Realistically, the current stimulus bill can only be a very small down payment on what will be a 20-year $2 trillion project.

3.     Accelerated Depreciation - If we allow businesses to fully depreciate their capital expenditures in the first year of a jobs plan, it will go a long way to stimulate our manufacturing base and maintain and possibly increase employment in 2009. Although not necessarily equal, there is an offset between the loss of revenue from business and the increase in revenue from greater employment.

4.     Issue 1 million “green cards“  - Over the next 12 months, issue green cards to well-educated immigrants who have the resources and will to commit to starting small businesses, which are the greatest engine of job creation in the U.S. Priority should be given to those who want to create export companies. We will create millions of jobs, reduce our surplus housing inventory by 1 million units, and reduce our balance of trade at no expense to the U.S. taxpayer. Such a plan would also increase our most important resource, intellectual capital, which is the basic premise of this analysis.

5.     For those who may worry that I’m unrepentant tax cutter, I say -”Cutting Marginal Tax Rates Won’t Work” - Such cuts should not be included because they would probably not be as helpful as they have been in the past. When President Ragan did it, marginal rates where high, 70% and there was a clear benefit to reducing them. Using a physics analogy a 70% marginal tax rate created massive economic potential energy, which was converted to economic kinetic energy by dropping the rate to 28%. Today, marginal rates are not high enough to store potential energy, and cutting them will generate little kinetic effect. But we can revisit this when the current tax cuts expire at the end of 2010. Rates will then be high enough that cutting them may make a difference.

6.     Government at all levels has an important role to play in creating high paying jobs for the future, Education - Over the long term we must improve our performance because we are falling behind other sophisticated OECD countries, particularly in mathematics and science, and that does not augur well for the future. We are the nation of ideas and innovation, we will never be able to go backward and compete for unskilled jobs in a global economy. Our children are our future — but only if we educate them.

I’m sure there are many other innovative ways of creating jobs. I invite you to share your thoughts.