So THAT'S the Problem!

"When you really analyze it, if you want to stimulate economic growth, you have to have people investing, creating capital and creating jobs. Basically, a big part of that (stimulus package) went for extending unemployment. It's a nice thing to do, but when you extend unemployment, you take the incentive away from people to go out and get a job. So it almost has a counter negative effect."
- Former Speaker of the House Dennis Hastert , Republican from Illinois.

Well now we know why the employment picture is so bad. All those laid-off workers are loafing around, watching Oprah and cashing their benefit checks. It is clear the way to bring the economy back from the brink is to cut benefits and force people out of their bathrobes and out of the house to fill all those jobs that are going begging.

This quote is a further indication of how the people who work in Washington don’t understand the people who work in Main Street and what they go through every day to make ends meet. And, according to the Government it is only going to get harder for those who do work on Main Street.

The Department of Labor released the latest unemployment report today (Feb. 6, 2009 http://www.bls.gov/news.release/empsit.nr0.htm). Unemployment is now at 7.6% - the highest its been since 1992. 7.6% translates into 11.6 million unemployed. Of those 11.6 million, 2.6 million are considered “long term unemployed” who are defined as being unemployed for over 27 weeks (a touch over six months). This means 9 million workers have recently stepped out of the employment market to ride Hastert’s unemployment benefit gravy train. Even more sobering is the fact that of 3.6 million jobs lost since December of 2007, half of those were lost in the last three months.

People want to work, but how will they find a job?

The stimulus package is being touted as the answer. The Democrats are pushing spending on infrastructure, increasing benefits, aid to the states, and pumping money directly into the economy to put the fellow on the unemployment line back to work. To listen to the Republicans, the fellow on the unemployment line is actually waiting for a capital gains tax cut.

The Republicans do not seem to grasp the speed or size of the problem. At the current rate America is shedding nearly 18,000 jobs a day. That works out to 750 jobs for every hour the Republicans extend the debate and delay a vote. These are 750 workers who are told to pack their desks or their lockers and not come back. They are real people with bills to pay, mortgages to meet and families to support. They are not a statistic.

Mark Zandi, Chief Economist for Moody’s Economy.com website published a report on 1/21/2009 on the economic effect of the proposed stimulus package. His report contains a very interesting “bang for the buck” chart that shows the change in GDP over a year for every stimulus dollar spent , or stimulus dollar tax cut.
(http://www.economy.com/mark-zandi/documents/Economic_Stimulus_House_Plan_012109.pdf)

According to Zandi, the four least effective stimulus options are accelerated depreciation ($0.25 for every dollar); a cut in corporate tax rates ($0.30 for every tax dollar cut), making the Bush tax cuts permanent ($0.31 for every tax cut dollar) and dividend/capital gains tax cuts ($0.38 for every tax cut dollar).

The four most effective options, according to Zandi are general aid to states ($1.38 for every dollar spent), increased infrastructure spending ($1.59 for every dollar spent), extending unemployment ($1.63 for every dollar spent) and a temporary increase in food stamp ($1.73 for every dollar spent).

Zandi shows the effectiveness of the stimulus package is dramatically reduced every time the Democrats agree to replace a spending dollar with a tax cut dollar. His chart clearly shows that there is a reduction of $1.21 of simulative effect for every dollar taken from infrastructure spending , and given to support a cut in capital gains tax.

Yet the Republicans do not seem to understand the size and the scope of the economic problem. They are asking for more time to review the stimulus package to find ways to reduce spending and increase tax cuts. They want to delay the vote on the stimulus bill until Monday, during which time the American economy will shed another 54,000 jobs. This evening they succeeded in cutting over $100 Billion in spending which translates into cutting approximately $156 Billion in economic stimulus.

Whether it is Hastert’s fantasy that the recession is worsened by extending unemployment benefits, or the Congressional Republicans demanding tax cuts, the Republicans continue to prove that they are out of touch with what is happening to Americans in this economy.

But Hastert was right about one thing. It is a nice thing to do to extend unemployment benefits, not only for the recipient but for the rest of the economy as well.