Commentary: Forget the New Deal, we need a new plan
This article first appeared in the St. Louis Beacon, June 18, 2009 - The economy lost only 345,000 jobs in May. That figure, believe it or not, was a significant improvement over the first quarter of the year when it was shedding 500,000 to 600,000 jobs a month.
Before you make plans to organize a parade to celebrate, remember that the economy needs to add roughly 50,000 jobs monthly just to keep pace with new workers entering the labor force. Adjusting for that factor, we find ourselves about 395,000 jobs short for May -- and that was the best month we've had this year.
According to the Bureau of Labor Statistics, 7 million people have been added to the unemployment rolls since the beginning of the current recession. There are presently 14.5 million jobless persons, which translates to an unemployment rate of 9.4 percent. The long-term unemployed (jobless for 27 or more weeks) rose to 3.9 million -- triple the number at the start of the recession. None of these figures reflect the individuals who've given up and simply stopped looking for work.
This year's federal budget deficit is estimated to be $1.8 trillion. That's the money that the government will borrow just to pay its bills. To appreciate how enormous that sum is, consider that a convict sentenced to 1.8 trillion seconds in prison would serve about 570 centuries behind bars. All of recorded human history comprises less than one-fifth of that span.
Responding to the mess he inherited, President Barack Obama pushed his economic stimulus plan through Congress last February. According to the Christian Science Monitor, only about 3 percent of the stimulus money had been dispersed by mid May, so it's impossible to empirically evaluate the program's effectiveness at this point. That said, I'm not optimistic about its prospects.
The problem is one of focus; or, more specifically, the lack thereof. The package is essentially a disjointed amalgamation of good ideas, liberal pipe dreams, eco-friendly initiatives and pro-education outreaches all of which have some intrinsic merit, but none which addresses the urgency of the situation.
To borrow a phrase from the most recent President Bush, "This sucker could go down." Responding to unemployment and other numbers, such as those cited above, with increased funding for the Head Start Program is bit like re-painting the deck chairs on the Titanic. The government's response to the mess in the auto industry is a case in point.
When it became apparent that the American auto industry was on the brink of collapse, several proposals were put forth to prevent the catastrophic job losses such an event would entail. One of these, which might have actually worked, was to grant a $5,000 tax credit to buyers of new American-made cars.
Understand that this would have been a credit subtracted directly from the taxes owed, not a deduction that is subtracted from gross income before taxes are computed. A fictional taxpayer, for instance, with a gross income of $100,000 taxed at the very fictional rate of 10 percent would owe $10,000 in taxes.
If he received a $5,000 deduction, he'd subtract that amount from his income thus reducing that figure to $95,000 and his tax obligation to $9,500. But if he received a $5,000 credit, his tax burden would be cut in half.
As Gordon Gekko might have put it, "Tax credits, for want of a better word, are good." Though I had no immediate plans to trade in my 3-year old Ford, I'd have been financially compelled to do so if the government was going to pay me $5,000 to drive a new car.
Further, all the money spent under this proposal would have come in the form of forfeited tax revenue. The beauty of that feature is two-fold: no money has to be borrowed upfront and none of the money spent is wasted because only people who actually buy cars receive the credit.
Rejecting that sleek and attractive alternative, the government instead launched a series of bailout measures modeled after the TARP assistance to Wall Street to save the troubled industry. The latest round of these has inflated the total tab to approximately $40 billion in borrowed money and has resulted in government ownership of large parts of Chrysler and GM, both which are presently bankrupt.
So far, the effort has yet to sell a car but Uncle Sam is now guaranteeing vehicle warranties. The next time you need roadside assistance, just call your local member of Congress to see whether a team of Navy Seals can fix your flat. By contrast, $40 billion would have paid the $5,000 tax credits for the sale of 8 million American-made autos.
Though the direct credit idea was rejected, you can now deduct the state sales tax you pay on a new car from your federal taxes. That means that a new car buyer in the 28 percent bracket who pays $1,500 in sales tax today can save $420 next April when he files his taxes. Whoopee!
President Obama has likened his situation to that of FDR's when the latter man took office in the midst of the Great Depression. The comparison is apt. Mr. Obama would do well to remember, however, that despite the massive economic interventions of the New Deal, it took a world war to finally put everybody back to work.
To the extent that FDR's herculean peacetime efforts fell short, and given that most would agree that global conflagration in the Nuclear Age would likely result in the utter destruction of humankind, it may be time to come up with a new plan ...
M.W. Guzy is a retired St. Louis cop who currently works for the city Sheriff's Department. His column appears weekly in the Beacon.