A Partial Solution to the Unemployment Crisis...CASH FOR JOBS!

This morning, our very own Bureau of Labor and Statistics (or is it Lies and Statistics?) reported the monthly "payroll report", which is released the first Friday of every month. Great news! ONLY 190,000 more jobs were lost. Never mind that prior months' numbers were revised higher. As a result, we are now told that unemployment is 10.2%, the highest reported number in this cycle.

Yet, we're in a recovery! or so goes the position of our leadership. Somehow, it seems like the government has thrown the kitchen sink at rescuing the economy and yet all we have for our efforts is a new oxymoron: "The Jobless Recovery".

Even with an unemployment rate of 10.2%, virtually everyone suspects it to be much higher. For example, income tax revenues are down closer to 25%: putting many states, like California, in severe financial jeopardy. An amazingly large number of small businesses are on life support , if they're alive at all, and praying they last to Christmas.

What most people don't know exactly, but suspect, is that this already unacceptable 10.2% rate WAY understates the true magnitude of the problem. They're right! During the Clinton administration, the approach to calculating unemployment and inflation changed. The new approach produces a VASTLY lower number than the approach used when Reagan was President.

Fortunately, some economists still produce these statistics the old way.
The most well known is a guy named John Williams, who runs a paid site called http://www.shadowstats.com/. I have no financial relation with this site. However, as of last month, according to Shadow Stats, unemployment, calculated as it would have been reported in 1980, would stand at 22%!

A rate that high, better reconciles with what we observe and with the major dropoff in tax revenues.

So, what's the way to attack this problem? I propose an approach called "Cash For Jobs". Instead of paying people to buy cars or appliances, pay companies to hire. The general idea would be to create a multi-year plan whereby any company able to raise its headcount would be subsidized with some sort of tax break to bring on  new workers so as to grow overall payroll. That way we don't reward replacing existing employees with cheaper subsidized employees. That approach has already been done by companies outsourcing to China, India and the emerging countries that have systematically taken our manufacturing base and are now taking services.

Under the CFJ approach, the cost of hiring NEW, incremental people, would be accomplished through some sort of subsidy and phased out in increments over, say, 5 years.

Why should this work? Well, its axiomatic that subsidizing something creates a surplus and taxing it creates shortages. Want proof? If you're old enough, you remember giveaways of surplus cheese and milk being literally thrown down the drain. The reason was the existing agricultural subsidies. When we overly taxed something like oil, we got massive shortages like in the late 1970's. Yes, some of it started with the old "oil embargo", but the "Windfall Profits Tax" discouraged drilling for new oil and it wasn't until Reagan lifted this idiotic tax that supplies improved and prices dropped almost instantly.

One quirk of employment is that it doesn't respond as flexibly to changes in supply and demand. Most employers would prefer to drop headcounts than cut wages and thus supply and demand doesn't tend to clear well.

Wouldn't CFJ make it easier to employers on the fence to begin hiring, especially if it weren't token. But could we afford it? Sure, those newly hired employees would still pay income taxes and be able to modify their mortgages, which in turn would have some positive impact on the housing market. It would also instill a sense that programs were being created to help those that are falling through the cracks.

It's high time we stopped helping those that need it least like banks, and instead create programs to encourage helping those that need it most.


Marko's Take