Paul Krugman had an excellent piece in the New York Times the other day(The Wrong worries, Aug.4,2011) to which I along with more than 500 other readers responded with a comment. I am reproducing the comment below because I think it has some useful suggestions about job creation using both the spending power of the U.S. federal government, the state and local governments and the tax system.
All along I have been hoping that the economy might turn around based on the gradual rebound from the crash and crisis and the stabilization that the stimulus promoted. But now despite the most recent job creation data which resulted in a marginal decline of the unemployment rate to 9.1 %, given the deficit and debt hysteria that now is widespread and the very dubious downgrade of American debt by Standard and Poor which strangely used their Toronto analyst as their lead analyst in the process and made some serious mistakes about the actual size of the deficits and debt and who is also the author of a somewhat slanted dubious study on the ageing of the American population and the supposed excessive burden of looking after them in their old age, as if looking after your parents and grandparents was somehow not a normal ethical obligation for a modern enlightened society, I am now not so optimistic. I will return to the bond raters’ revenge in a later post but for now, below is my NYT comment.
I agree with Paul Krugman. The positive effects of the earlier stimulus have now largely petered out undermined by state and local government cuts, ill timed austerity initiatives at the federal level, and the failure of the private sector to respond by using their very substantial cash reserves from both corporate profits and bail out monies to hire workers. The stock market sell off now underway will only worsen the situation.There should be an immediate and very substantial program of direct employment creation in co-operation with state and local authorities bankrolled in part by the federal government despite the constraints of the budget control act . There should also be a tax measure that is partly refundable upon the creation of jobs by the private sector applicable to large corporations that have extraordinary cash reserves. The employment creation programs could be financed through the sale of special employment bonds some of which the federal reserve could buy and add to their balance sheet. Corporations and individuals who bought the bonds could also use them as partial credits against their tax obligations. A domestic job corps should also be established to help the long term unemployed .A wide range of cultural projects, community based grass roots projects, environmental projects,projects to aid the homeless and parks projects should be included in such a program.The focus at all times should be on reducing the unemployment rate to below 6 % as a first step on the path to true recovery. If these kinds of measures are not taken I am quite worried that the economy will be stuck for a long time in a situation of chronic high unemployment. The best and at this point only sensible way to reduce the long term debt is to dramatically lower the rate of unemployment. We learned this lesson from the events of the great depression of the 1930s and the experience of war-time and it is a lesson that should never have been forgotten. (Haroldchorneyeconomist.com)