Justin du Coeur (jducoeur) wrote,
Justin du Coeur

The Jobs Now bill

I think most people can agree on one thing: the current political structure has jumped the shark. Not only is it idiotically contentious, it is *completely* devoid of imagination. Both parties are locked into 40-year-old (or older) mindsets about how economics works, and both tend to favor ridiculously oversimplified answers.

The classic example is how you stimulate the economy. The Democrats still favor highly government-centric stimulus. Sure, it's being doled out to private companies, but the government is still making all the decisions about where it should go. There's a place for that, but it should be focused on infrastructure development (the proper place of government), rather than how to create the most jobs -- basically, it's trying to serve two purposes, so doesn't necessarily do either well. It's a recipe for pointless pork.

The Republicans, OTOH, are wedded to the idea that reducing capital-gains taxes is the answer to all economic ills, which looks increasingly ridiculous. It's quite clear that *simple* tax breaks aren't going to help, because business is already plenty profitable this year. It's just that they aren't plowing those profits into domestic jobs, because that isn't obviously the best use for that money. Giving them more simple profits doesn't change that.

Okay: let's accept the political reality. Due to the breakdown in Washington, not much can actually get *done* aside from reducing taxes. The problem at hand is to increase jobs: almost everyone agrees that that is the central sticking-point in the economy. (There are other severe problems, of course, not least the bust housing market, but unemployment seems to be at the heart of the current economic lockup.)

So here's a not-very-modest proposal:
Starting right now, businesses get a 100% tax break on *payroll increases*. That would be measured against one-year-ago numbers, based on payroll reported to the government: essentially, all new hires get their salary compensated by tax breaks.
Employees wouldn't be quite free -- there are still health-insurance and tax expenses -- but it makes hiring very, very cheap. It specifically gives businesses a reason to expand *now*, by reducing the risk of expansion and providing a reason to believe that that expansion will pay off.

This plan should have aggressive sunsetting built into it. Companies would be compensated at 100% for the first year of a payroll expansion, 66% for the second, 33% for the third. (To discourage a quick hire/fire cycle, and give the recovery enough time for a solid foothold.) The plan would be phased out gradually but efficiently: companies would get 100% of the benefit for anyone hired in the first quarter, 90% the second, and so on, dropping to 0 in 2.5 years. (By which point this plan has either succeeded or failed -- there is no point continuing it any longer than that.) Putting those pieces together: the sooner you expand, the more benefit you get, and those benefits pay out over three years if you maintain that new level of payroll, reducing over those three years. The sunsetting is gradual, to avoid the usual problem of a massive and sudden fall once a program ends. (As happened with the new-mortgage support, for example.)

The idea is that this plan is specifically to kick-start the economy, not support it long-term. We currently have an intractable cycle: unemployment is high because businesses aren't hiring; they aren't hiring because they anticipate unemployment staying high so the economy stays in the doldrums. The country needs to break that cycle, by making clear that employment *will* go up, and providing realistic tools to encourage companies to play along. Frankly, it's all about shifting things back towards "greed".

(A basic of market economics is that things are driven by the tension of "greed" and "fear". We've been *way* too far on the "greed" side for a couple of decades; having gotten our comeuppance, we've swung equally too far towards "fear". The trick is pulling things back towards the center, which is where a healthy and stable economy resides.)

What are the problems with this proposal? Obviously, the deficit hawks will scream bloody murder about it, but it's not obvious to me that they have a valid case. The truth is that the deficit doesn't matter, the debt does, and in the medium term this plan looks likely to be good for the debt. It costs a bunch upfront, but a fair chunk of that comes right back to the government in the form of taxes and reduced unemployment payments. In the longer term, the worst *possible* thing for the debt is an extended period of doldrums: government spending entirely aside, the government's income is shattered by the tax losses. So if this succeeds in its goal of improving medium-term employment, it's probably at least a wash in terms of the debt: basically, it's an investment with a ~3-5 year payoff.

The centralizers will hate it because it provides no government control over *what* those new jobs are. IMO, that's a virtue: it doesn't try to dictate the economy. It just recognizes that the goal is new jobs, and focuses laser-like on that.

It does produce some economic distortions -- growing companies wind up with a definite competitive advantage over established ones, since their costs-per-output are lower. That's probably not too bad a side-effect: that's a normal effect of economic creative destruction. But it would be reasonable for large companies to be just a hair nervous about the effect. (OTOH, if it winds up producing economic growth again, they still probably come out in the plus column.)

And it's sure to produce all kinds of creative fraud. I suspect that even a good bill would wind up more complicated than I'd like, simply to legislate against some of the possible scams. Such is life at this level: it's hard to do *anything* at the federal level that doesn't produce opportunities for fraud. That doesn't worry me too much, although it's important to figure out and rule out ways to game the system legally.

Opinions? This is clearly a scary-big proposal -- but it's frankly less dramatic than many of the proposals that both parties routinely trot out, and seems better-targeted to the problem at hand. It seems to me likely to actually *work* decently well; I'd be interested in arguments about why it wouldn't. If you do think it's a good idea, I encourage you to forward it on...
Tags: economics, politics
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