Thursday, July 02, 2009

Employment

Obama Administration is in a 'bind' about this non improving employment picture. As Matt Yglesias says, they were happy about the tangled stimulus bill and now it is not showing the results.

The bill was fundamentally compromised is a fact. With emphasis on all sorts of tax cuts and need to please Sen. Snowe and other honchos in Senate; it lost the focus of direct and quicker employment generation. Help to States - that was the good part and that still is considering how States are falling over the cliff. Direct tax savings - looks like it is reflecting in increased savings rate instead of giving any boost to consumption. Some talked about giving coupons to each tax payers which can only be spend. None of those creative ideas were followed due to the perceived risks in that and here we are.

The other glaring failure is of VP Biden. He was asked by Obama to look after the execution and to see that 'money' gets out of the gate fast. That is not happening. In the week when Administration wanted to have renewed focus on pushing stimulus projects, it saw the slowest spending on that! No doubt, Obama White House is lackadaisical on this front (spending the money quickly and effectively) and essentially blind in terms what it can do.

Obama Administration used some great Media skill and with the help of luck created the metaphor of 'green shots' to get out of the 'bank stress tests business'. That was a brilliant political manoeuvre. But when it comes to employment, the political magic cannot solve the problem. The problem must be solved at the core and no gimmicks can serve well.

Slowly it will dawn on Media and 'powers be' that chances of recovery will start receding if employment does not hold. It is not holding now. The need to devise smarter stimulus package was high because with deficits looming so large there is 'no borrowed' money in the world to try it again. It is hard to have another stimulus package. Where is the money? What will give in for that? Do we simply print it more? That is non-sense and those who say that are wrong there.

The solution now is:
- squeeze in whatever is there in stimulus package to work quickly and effectively;
- pending Energy and Transportation Bills (new money) in Congress should be geared towards generating some direct and quick employment; (no fancy things in some indeterminate future);
- continue policies like GM bailout where Administration blatantly sold itself to Labor at the cost of bond holders (for the simple reason because even thousand jobs saved is an addition in this environment); i.e. continue the 'employment programs' like GM for a while;
- and finally some tax increase early next year to finance new inputs to employment creation.

But boy, it looks grim and Administration has on it's own walked into a dangerous zone.

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