Why the Obama/Bush Economic Plan Will Not Work
Why the Obama/Bush Economic Plan Will Not Work
Unemployment is heading up quickly and plans are being laid at the Federal and State level to try to deal with the economic implications. Although details are still sketchy of the Obama/Bush plan, a
Unemployment is heading up quickly and plans are being laid at the Federal and State level to try to deal with the economic implications. Although details are still sketchy of the Obama/Bush plan, a couple of things are becoming increasingly clear (besides the fact there is no fundamental difference between Obama and Bush plan). The first is that anything the government does do will be on borrowed money, leaving the future bill to others to deal with. This increases the risk that if it does not work, then we still have economic problems and we still have to pay the bill. The second thing that is clear is that infrastructure development will be a big part of the plan. Every community in the country is developing a list of projects to give the government that they want funded so they can create jobs. It will be interesting to see what the final tally is but it will likely run trillions of dollars more than we can afford which then leads us down the slippery slope of figuring out which projects will get done (then we will get to see politics at its worst).
A couple of realities need to be faced by out government officials. First, economics is local. The unemployment rate in Miami does not impact Whatcom County. If jobs are created in Miami there is going to be minimal or no impact on Whatcom County. The only thing that matters is what jobs are being created in the community that you live. Yes, if we buy more goods they will create jobs somewhere else, but at this point the primary issue is jobs. The other reality is that not all jobs are the same. People and their skill sets are not fungible. The unemployed banker today is not going to be building roads tomorrow. The implication is that jobs must be created to match the skill set of those that are looking for jobs, with some possible retraining exceptions. The attached figure shows the unemployment numbers and rates for all industries. Construction does lead the way, so infrastructure projects may have some impact there, but what about leisure and hospitality, administrative support, transportation and warehousing, retail trade and durable goods. Doing massive infrastructure investment is going to do nothing in these areas to help the unemployment problems in these industries. The fact is that any government plan will only help a small number of workers, while leaving most to fend for themselves. Even worse, creating government jobs (as Obama wants to do) has no impact considering the unemployment rate of government workers is a whopping 2.3%.
The only way out of our economic situation is to create jobs, and do it in both the industries and communities where people need them. The only way to do that is dramatically increase the ability of people to create their own jobs through entrepreneurship in either the for-profit or non-profit sector. We cannot wait for existing businesses to simply higher more people. The biggest problem we have is that with the credit crisis, new entrepreneurs have an even more difficult time getting funding for new businesses. The way out is simple. What if the unemployed were providing with the help and training to write a business plan and then funded to the tune of $50,000-100,000 in a quick, painless process that encouraged people to start a business. This money would provide a salary for a year and some small capital purchases, and we could spend a fraction of what we are currently planning and make a significant dent in the unemployment rate. Over time many of the businesses will fail, but hopefully when employment is easier to come by and those that succeed will start hiring other workers. The other element is the impact of the business going under is high and is a deterrent to many people so the impact of failure must be minimized. If an individual starts a business and it fails their credit should not be impacted for years.
Most communities have Small Business Development Centers that help businesses write business plans and get started. These centers could also receive government money to provide the loans to individuals based on their assessment of the potential of the business for success. This would take banks and government bureaucrats out of the loop (both more interest in their own jobs than helping others create jobs) and empowers communities and individuals to find creative solutions to their employment problems. The only way out is to minimize the risk of starting a business and maximizing the opportunity to get the required financial capital.
Government does need to play a role in helping out with the current situation, but their help needs to be directed to those solutions that empower people and communities to create jobs for themselves, not creating jobs for a few powerful campaign donors. I am eagerly waiting for another press release from Rep. Larsen towing the Obama/Bush party line that we need to pump trillions of dollars into infrastructure (or banks or auto industry) and other projects to “save” the country. It will once again prove how uninspiring, uneducated and spineless our elected officials are when it comes to dealing with tough issues.
A couple of realities need to be faced by out government officials. First, economics is local. The unemployment rate in Miami does not impact Whatcom County. If jobs are created in Miami there is going to be minimal or no impact on Whatcom County. The only thing that matters is what jobs are being created in the community that you live. Yes, if we buy more goods they will create jobs somewhere else, but at this point the primary issue is jobs. The other reality is that not all jobs are the same. People and their skill sets are not fungible. The unemployed banker today is not going to be building roads tomorrow. The implication is that jobs must be created to match the skill set of those that are looking for jobs, with some possible retraining exceptions. The attached figure shows the unemployment numbers and rates for all industries. Construction does lead the way, so infrastructure projects may have some impact there, but what about leisure and hospitality, administrative support, transportation and warehousing, retail trade and durable goods. Doing massive infrastructure investment is going to do nothing in these areas to help the unemployment problems in these industries. The fact is that any government plan will only help a small number of workers, while leaving most to fend for themselves. Even worse, creating government jobs (as Obama wants to do) has no impact considering the unemployment rate of government workers is a whopping 2.3%.
The only way out of our economic situation is to create jobs, and do it in both the industries and communities where people need them. The only way to do that is dramatically increase the ability of people to create their own jobs through entrepreneurship in either the for-profit or non-profit sector. We cannot wait for existing businesses to simply higher more people. The biggest problem we have is that with the credit crisis, new entrepreneurs have an even more difficult time getting funding for new businesses. The way out is simple. What if the unemployed were providing with the help and training to write a business plan and then funded to the tune of $50,000-100,000 in a quick, painless process that encouraged people to start a business. This money would provide a salary for a year and some small capital purchases, and we could spend a fraction of what we are currently planning and make a significant dent in the unemployment rate. Over time many of the businesses will fail, but hopefully when employment is easier to come by and those that succeed will start hiring other workers. The other element is the impact of the business going under is high and is a deterrent to many people so the impact of failure must be minimized. If an individual starts a business and it fails their credit should not be impacted for years.
Most communities have Small Business Development Centers that help businesses write business plans and get started. These centers could also receive government money to provide the loans to individuals based on their assessment of the potential of the business for success. This would take banks and government bureaucrats out of the loop (both more interest in their own jobs than helping others create jobs) and empowers communities and individuals to find creative solutions to their employment problems. The only way out is to minimize the risk of starting a business and maximizing the opportunity to get the required financial capital.
Government does need to play a role in helping out with the current situation, but their help needs to be directed to those solutions that empower people and communities to create jobs for themselves, not creating jobs for a few powerful campaign donors. I am eagerly waiting for another press release from Rep. Larsen towing the Obama/Bush party line that we need to pump trillions of dollars into infrastructure (or banks or auto industry) and other projects to “save” the country. It will once again prove how uninspiring, uneducated and spineless our elected officials are when it comes to dealing with tough issues.
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