Infrastructure boost will not end jobs drought
By Peter Morici
With congressional Democrats in the United States facing a November
shellacking, President Barack Obama is floating new programs to aid troubled
homeowners and create jobs that will prove costly and ineffective.
Despite rock-bottom interest rates, residential sales are at historic lows and
2 million families face foreclosure this year because people need decent jobs
to buy homes and pay mortgages.
With Obama's US$787 billion stimulus package at maximum force, his healthcare
reforms inexorably socializing 19% of the US economy, and Wall Street revamping
to met new financial regulations, the economy lost 54,000 jobs in August, the
private
sector added a mere 67,000 jobs, and unemployment rose to 9.6%.
Of new private sector jobs, 40,000 were in health care and social assistance -
largely financed by government largess and federal mandates - while temporary
services accounted for another 17,000.
Morici's index of core private sector employment - private sector jobs less
healthcare, social assistance and temporary services - was up a paltry 10,000.
On an annual basis, that would be less than 5% of new high school and college
graduates.
Now, the president wants another $50 billion in infrastructure spending,
stretched over six years and funded by cuts elsewhere. Though adding to
construction and supply industry employment, cutting other spending would
subtract jobs elsewhere.
Also, the president proposes repealing the George W Bush tax cuts for families
earning more than $250,000 and using the money to forgive some payroll taxes
for new hires by small businesses.
What the president does not reveal is that his policy would increase to 50% the
marginal tax rates on enterprises that account for more than half all small
business profits - the very mom and pop enterprises he wants to hire the
unemployed.
Restaurants and machine shops are not hiring because they don't have enough
diners and factory orders. A modest hiring subsidy won't solve that problem,
but new taxes and healthcare mandates could persuade small businesses to close
shop altogether.
The history of investment and employment tax credits is that those only have
modest immediate effects; then several months later, enterprises spend less -
much like the recent experience with cash for clunkers and auto sales, and tax
credits for first-time homebuyers.
In the end, businesses build and staff with workers only as much capacity as
the demand for what they sell will justify.
Demand for what Americans make is tanking thanks to a growing trade deficit
with China instigated by trade agreements negotiated by president Bill Clinton
and fear instilled by the Nancy Pelosi-era Democratic Party's obsession with
taxes and regulations for businesses and personal behavior.
The president already has in place programs to help distressed homeowners
behind on mortgages. Those aid too few families because banks can't rework
mortgages for underemployed workers with low incomes and the federal
bureaucracy is so ineffective at implementing presidential policy.
Now, the White House proposes that for homeowners, up-to-date on payments but
whose mortgages exceed the value of their homes, banks and investors will
forgive the equity gap and the Federal Housing Administration (FHA) will back
up new mortgages on the market values of those homes.
Wisely, banks and investors are reluctant to write-off debt on performing loans
- they may actually get out what they are owed in the long run. Banks are
likely to hoist on to the FHA - and the taxpayer - homeowners they believe are
likely to fall behind on payments soon.
It's another election year ploy that will blow up later because those new loans
will fail and require much higher fees for honest FHA mortgages.
When Republicans point out the shortcomings of those proposed jobs and mortgage
initiatives, Obama will cast them as cynical defenders of the rich.
Obama likes to claim conditions are better now than when he took over from
president Bush but things are getting worse, and this November voters elect a
congress and Speaker not a president.
When house speaker Nancy Pelosi and the Democrats took control in January 2007,
the federal deficit was $161 billion and unemployment was 4.6%. Subsequently,
Wall Street, with help from president Clinton's repeal of the Glass Steagall
Act, threw the economy into the Great Recession, and Pelosi and Obama have
since spent and regulated recklessly with few positive results.
If Obama insists on teaching Americans economic history, his syllabus should
give adequate attention to all the contributors to the catastrophe we now
endure.
Peter Morici is a professor at the Smith School of Business, University
of Maryland, and former Chief Economist at the U.S. International Trade
Commission.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
