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Irwin Kellner
Nov. 10, 2009, 1:35 a.m. EST · Recommend (2) · Post:
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Why does Cisco need to issue $5 billion in debt?
By Irwin Kellner, MarketWatch
PORT WASHINGTON, N.Y. (MarketWatch) -- Now repeat after me: Unemployment is a lagging indicator. It does not cause recessions ... it is caused by them.
Unemployment is always low when recessions begin and high when they end. That said, some business cycles are more severe than others. This downturn was one of them, so it is not surprising that the unemployment rate is much higher.
In addition, whenever the origins of a recession are financial -- as this one was -- the recession tends to be more severe than usual. On top of this, labor productivity has grown much more than it normally does -- thanks to rapid advances in technology, the ease of substituting computers for workers and the rise of outsourcing.
This combination is a recipe for a jobless rate that will keep climbing even if the recovery is not short-lived (although I think it might be -- see my column of Aug. 11.)
But it does not have to be this way. There are some things we can do to create jobs, thus hastening the day that the unemployment rate declines to more tolerable levels.
First and foremost, the government should focus laser-like on job creation. This means passing no laws or special programs (health care, energy and climate) that do not result in new jobs ASAP.
Indeed, the jobless situation is so critical that the administration should consider reviving some of the programs of the 1930s that created jobs fairly quickly.
I am referring to such "alphabet agencies" as the Agricultural Adjustment Administration (AAA), the Civilian Conservation Corps (CCC), the Federal Emergency Relief Administration (FERA), and the Works Progress Administration (WPA), to name a few.
Next are tax credits for those companies that hire people. I know some "experts" have problems with this, but they can be worked out; where there's a will, there's a way.
Small businesses and start-ups should be favored, since these are the historic engines of job growth. Also, Washington should help growth and/or labor-intensive industries, or failing that, should just get out of their way.
Hiring would also be helped if the government were to lower the cost of adding staff, such as payroll taxes, workers' compensation premiums and companies' pension obligations.
On the other hand, the last thing Washington should do is raise companies' health-care costs while increasing the taxes small-business entrepreneurs pay. Guess what? This is exactly what is about to happen.
It would also be helpful if the banks were persuaded to open their credit spigots to companies large and small that have a solid plan for the use of these funds and the means to pay them back.
Right now many banks are content to play the yield curve. They borrow from the federal funds market at virtually no cost and use these funds to buy ultra-safe Treasurys.
To give the demand for goods and services a shot in the arm, the government should send consumers a gift card that cannot be used to pay off debt or added to their savings accounts. Rather, it must be spent within a certain period of time -- say three months.
Readers will recall that I first advocated this in my column of Jan. 19. It would have actually cost less than the stimulus program that was eventually passed -- and would have been much more effective in adding jobs at the same time.
Some people never learn.
Irwin Kellner is MarketWatch's chief economist.
- AmericanPatriot | 2:12 a.m. Today2:12 a.m. Nov. 10, 2009
At first glance, Cisco's plans for a $5 billion debt offering might seem curious. After all, the networking giant reported just last week that it had cash and equivalents of about $35 billion.
4:29 p.m. Nov. 9, 2009 | Comments: 14
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