Last week, Senate Finance Committee Chairman Max Baucus (D-Mont.) introduced a new stimulus package and hours later, Senate Majority Leader Harry Reid (D-Nev.) announced he was rewriting the bill after some members had complained of too many concessions to Republicans. While its not clear what the final bill will look like, it is expected to be similar in content (more spending for wasteful programs), identical in theme (government intervention), and yield comparable results (less jobs) as last year’s stimulus bill.
The Failure of the Last Years Stimulus Bill
When President Barack Obama was sworn into office, the U.S. economy employed 134.6 million people and the unemployment rate stood at 7.6%. In response to growing job losses, President Obama passed an $862 billion stimulus plan that his economic experts promised would help the United States employ at least 138.6 million people by 2010. Reality has not been kind to President Obamas hope.
Instead, the current unemployment rate is 9.7%. Nearly 15 million people are out of work. The unemployment rate among teenagers is 26%, among blacks is 16.5% and among Hispanics is 12.6%. Veterans of the Gulf War conflicts after 9/11 also have an unemployment rate of 12.6%, leaving one out of eight veterans without work. And why did the Presidents first stimulus fail? For the same reason his second stimulus is destined to fail: Only the private sector in pursuit of opportunity can create new permanent jobs. The best we can hope from government is that it keeps to a minimum the jobs it prevents and the income and wealth it destroys.
Why Another Stimulus Will Fail Too
The specific policies being talked about on Capitol Hill for this third round of stimulus are particularly pernicious. The $5,000 tax credit for any business that hires a new worker does not create incentive for already-struggling companies to begin hiring, and it could even result in some currently unemployed individuals remaining unemployed until the tax credit is passed into law, or similarly, companies firing some workers and then re-hiring once the tax credit is passed into law. The Presidents TARP-funded government-subsidized loans for small businesses are also terrible policy. Besides the fact that unspent TARP funds ought to be used to pay down the deficit, the Small Business Administration has a poor record of effectively allocating capital to the private sector.
The real way Washington could create jobs is by getting out of the way. Fred P. Lampropoulos, founder and chief of Merit Medical Systems Inc., told the President in December that businesses were uncertain about investment because theres such an aggressive legislative agenda that businesspeople don’t really know what they ought to do. That uncertainty, he added, is really whats holding back the jobs.