US President Barack Obama's jobs speech last week sets out a grandiose job creation plan that is again essentially sponsored by government spending, aka, federal debt. The American Jobs Act, if passed by Congress, is supposed to lead to new jobs for construction workers, teachers, veterans, first responders, young people and the long-term unemployed. The bill provides incentives for companies to hire new workers, mostly via temporary payroll tax reductions.
Those all sound fine at first glance. But will this really lead to a long-term, sustained recovery of the economy and, particularly, the job market? And how should the government pay the US$450 billion price tag?
After trillions of dollars of co-ordinated fiscal stimulus packages by major governments around the world over the past three years, and two rounds of monetary easing by the US Federal Reserve, the US economy is still growing much more slowly than is expected in a typical recovery. Housing prices remain depressed. The stock market is still way below its high point before the 2008 recession. The most troubling sign is the anaemic state of the labour market, underscored by the zero growth in the latest jobs report. A jobless recovery is not the only concern; another recession may be lurking.
Keynesian economic theory is built on the premise that government spending will act as a multiplier that restores consumer confidence and thus stimulates corporate investment. But, this time, it seems it isn't happening.
Corporate America is not investing because it doesn't see how domestic consumers will increase consumption given the high level of credit card debt and the retirement uncertainties associated with federal health-care programmes and social security payments, of which the root cause is again attributed to debt - government debt, in this case. As a result, the fundamental cause of this anaemic recovery is debt at all levels. In a nutshell, America is deeply and thoroughly indebted.
