It's probably a testament to how bad things actually are that the President even attempted to push through major legislation aimed at boosting employment. The word around Washington even the week before was that the White House felt it wouldn't be able to pass anything meaningful, considering the toxic state of partisanship that surrounded the debt-ceiling fiasco, and thought that anything watered down enough to get through wasn't likely to help and would only provide another item for Republicans to point to as a failure of the administration heading into the 2012 elections.

 

I was therefore somewhat surprised when the President announced he'd be addressing Congress at the start of their joint session to try and push such a major initiative. After hearing his speech and taking the time to dissect the provisions of the bill, I have to say that I think it's a mistake. The proposal was clearly crafted with the intent of being passed, evidenced by the large number of Republican issues that were addressed, such as tax credits for small businesses who make new hires, while not only continuing the tax relief on SSI, but offering it temporarily to employers as well.

 

Here's the problem. Much like the original stimulus, it's just not big enough to make a noticeable difference and absent a very obvious and deep impact, it's not only going to be viewed as a failure, but it will likely slam shut the door on future solutions that involve spending. Republicans are already taking the position that the first stimulus ”didn't work“ and that this is hence ”more of the same.“ Unfortunately for confused Americans, no one is really giving them an accurate account of what's really happened so far – or what the problem really is regarding the economy.

 

Kudos to the President for vehemently making the correct assertion that the problem of long-term debt, which we all agree is very bad and dangerous, is still not a factor in our current economic malaise. But let's do a better job of describing what is. There are quite simply not enough employed Americans with rising wages and disposable income. In a leveraged, consumer-driven economy, that is a very bad thing. The solutions being debated are simply not going to drill spending down deep enough to impact that in any meaningful way. It will plug some holes and slow the bleeding, but it will lack the momentum to turn the tide, which is what we must focus on if the spending is to pay off.

 

There's a trillion dollar hole in our economy. Try to get your head around that for a second. That's a tremendous amount of economic activity missing from the equation. As a result, there's just not enough demand for goods and services for companies to expand and thus create employment. As extensions for unemployment benefits wind down, that will only mean less demand, as will continued layoffs at the state and municipal levels as their budgets continue to shrink.

 

The first stimulus was about $800 billion, but took nearly two years to be spent into the economy and much of it simply prevented further layoffs that threatened to sink us into a full-on depression. In that sense, it worked. Too much of it was also in tax giveaways that didn't lead to noticeable increases in consumption. The truth is, it just wasn't big or direct enough to do anything more than stave off a full on collapse, and because people don't notice things ”not getting as bad as they could be,“ especially while they're waiting for them to get much better, it's easy to argue that it ”didn't work“ to people who don't fully grasp the situation, which is to say, most Americans.

 

The essential problem is that the proposal delivered last week is also not large enough, or centered around the right things, to have an impact any more meaningful than the first stimulus. Tax credits for new hires do not create jobs. Companies will not hire because they get Social Security breaks or tax credits, but those who hire because they need to will still increase profit, while we just increase debt. Again, more profit doesn't get them to create jobs. We've seen that over the last few years. Corporate profits have been at all-time highs while unemployment has been too.

 

Demand for goods and services is what creates jobs. Extending unemployment benefits and giving money to states for teachers who would otherwise be unemployed will keep things from getting even worse – but that won't be noticed. After such expenditures are considered, it looks like there is less than $200 billion in the President's plan dedicated to spending money into the economy in a way likely to create jobs, like fixing our crumbling infrastructure. That's just not enough to stimulate the kind of demand that will boost consumption in a way that requires widespread new hires as a result.

 

Some people are understandably concerned about new spending of any kind and there are scenarios where too little government spending is worse than none at all, in the long term. Deficit spending has been successfully used many times to help stimulate the economy in a way that creates the kind of growth that in turn creates the kind of associated tax revenues that make it worthwhile fiscally. If you double the GDP in 20 years (as we have before), it pays for itself and then some. But absent something of proper scale, you are just spending money to plug holes until the next one springs. It really is an instance where you either go big, or go home.

 

However, if we do nothing – or just pass further deregulation and cuts to the corporate tax rate schedule, while gutting entitlements – we have no right to expect anything other than a steady slide downward as the economy continues to shrink and more layoffs occur. With unemployment at historic highs, demand for labor is of course at historic lows. That pushes down wages further, compounding our economic difficulties. Companies that do need to hire, can find workers for less than any other time in modern American history. Considering how debt-ridden most Americans are, that also does little to promote consumer spending. Putting more money into the pockets of corporations does not mean it will make its way into the hands of consumers – only executives and stockholders, who have been doing very, very well already.

 

If we truly wanted to close that trillion dollar hole, we'd have to fill it with enough direct spending to put a meaningful amount of unemployed Americans into living-wage jobs where they can consume enough goods in the economy to cause economic expansion. Programs like the Civil Works Administration are a good historic example. The most effective way for the government to spend money in this scenario is to hire unemployed people to do anything from building bridges and painting buildings, to digging ditches and picking up litter on the interstates. Those paychecks go where they are needed most – to unemployed consumers who spend nearly all of their net income on living expenses. This would create the consumption that broad-scale unemployment saps and as I've noted, increased consumption is what creates the demand for labor.

 

As unemployment lowers and demand for labor increases, wages naturally rise, putting – guess what – less of the pie into corporate coffers and more income into the hands of the consumers who drive more consumption and expansion. At a certain point, perhaps indexed to unemployment rates, the government claws back job spending until unemployment settles at its healthy level of around 5 percent. This is not some exotic or brilliant idea. I'm simply explaining the relatively simple, if politically difficult way that government intervention to stimulate the economy has worked through nearly a dozen cycles in the past.

 

This is how you use such spending to jump start the economy. Because the corporate raiders on both sides of the bubble, from the Angelo Mozzilos to the Jeff Greenes, have extracted so much of the wealth – contributing to the greatest income disparity since the Great Depression – and the size of the hole is so big, the numbers involved in a solution are admittedly astronomical. But like I said, it's time to belly up to the bar and decide whether we are going to roll the dice on a plan that actually has a chance to work. If not, we ought to just settle in for the long, not-so-slow slide to the bottom that we're currently on.

 

Go big or go home Mr. President, and if you can't get it through Congress, so be it. You will have at least demonstrated to the American people that you have the courage and will to fight for victory rather than doomed compromise. If that doesn't resonate, then neither will plugging a few more holes.

 

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Dennis Maley is a featured columnist and editor for The Bradenton Times. An archive of his columns is available here. He can be reached at dennis.maley@thebradentontimes.com.