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Why Not Cash For Jobs?

5 August 2009 One Comment

Instead of incentivizing spending, why don’t we incentivize job creation?  There is a serious argument to consider that says encouraging people to take on debt to buy a new car is a terrible move for the long term health of the economy.

Also, some say that Cash For Clunkers merely pulls buyers forward, and this boost to car sales will only be temporary and result in a return to more depressed levels once the program ends.  Does this program do anything for the long term health of our economy?  No, it doesn’t.

But what if we encouraged consumers to save money and small businesses to hire people?  If we’re dead set on spending the couple billion (it’s amazing how easily we throw around these numbers now), why not give $10,000 to every business that hires somebody?  Would that spur a recovery?

If consumers are encouraged to save their money, not spend it, and if businesses invest in new hires which will improve the employment picture, the result is an economy with some better job data and a growing batch of savings that will provide the capital for future growth and investment.  Instead, we’ll have an economy with growth stunted by debt levels, but at least we’ll have more newer cars on the road.

Sadly, until the focus on consumption rather than savings ends, and it has no end in sight currently, this type of program will not be a reality.  Instead we will try harder and harder to reflate the economy through incentivizing debt financed spending.  Each time our bubble pops, it will be harder to reflate and require more borrowing and printing.  This cycle is likely to continue until either there is a serious shift in our political structure or we have a currency / inflation crisis due to foreigners like China unwilling to continue to give us money that they will never see again.

Interestingly, Obama, a demand-side strategist, needs a supply side recovery to bail him out.  A supply side recovery is the only thing that will improve the employment picture, which I believe is necessary to improve consumption.  Obama would do himself a favor (with regards to re-election chances) if he were to enact a Cash for Jobs program and stop the Cash for Clunkers program. Wishful thinking most likely…

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