Monday, March 23, 2009

President Obama's Economic Stimulus Plan

Main Observation: The President's stimulus package is geared to mitigating the effects of unemployment. This has a number of forms or approaches. Today, we will address two approaches.

One approach is to prolong unemployment and even enhance unemployment benefit packages. Enhancing unemployment benefits to provide healthcare is an option. Such action can possibly lead to new job creation in the healthcare fields.

A second approach to dealing with unemployment is to stimulate economic activity so new private sector jobs based on private sector activities are created. Has anyone seen any information that shows self sustaining economic growth based on the current "post industrial" model for the US economy? You know, that's the one where we create or manufacture few of the physical goods people need to sustain and conduct their lives, just services and financial products of whatever quality, durability, and reliability. (Much more to come on this topic in subsequent blog entries.)

An unstated assumption in Approach 2 is that to make the economy grow and create new self sustaining jobs we have to do two main things. The first is to "save" the banking system as it currently exists; and the second is to create new R&D activities, or greatly enhance existing R&D funds available for business and government to spend productively.

The first idea for job creation via economic stimulation is that the banking system (including bank insurers) just needs to be coddled and coaxed using vast capital infusions to return to the old style functions of the banking system. You know, those are the ones that involved making loans to businesses and consumers whom the banker knew and trusted to run businesses and even expand the businesses in a safe manner, and to make consumer purchases in an orderly manner so as to not overextend. That means returning to the thrilling days of yesteryear when securitization was not yet invented. In future blog entries, we will discuss why securitization was invented. Of course, this will require a much diminished financial industry in terms of employment. We simply cannot survive as a society in which the fantasies of infants are allowed to dominate the adult world and expect to survive as a culture, and economic model, or perhaps as a nation.

The second idea for job creation mentioned above is to create or enhance research and development activity in productive areas leading to the creation of scientific and engineering R & D jobs themselves and also leading to opportunities for new commercial products to be manufactured.

In the time remaining today, let's go back and say a bit more about the impact of enhanced benefits for American workers on sustainable job creation. It is a surprise each day to see that there has not been explicit information presented about how to make any such newly created jobs resulting from government benefit programs self sustaining. That would require putting an unemployed person to work in a new or previously existing job that caused a profit to be generated somewhere or somehow that is sufficient to at least cover the cost of the new benefit.

Let's explore that a bit. Let's say an unemployed person who has a new healthcare benefit causes a new job to be created in an ER (emrgency room), Urgent Care facility, or possibly in other existing and/or new types of medical facilities. That's good, but clearly the unemployed person is not paying additional or any taxes to cause that healthcare job to be self sustaining for the following year.

What about employed persons who have a new or enhanced health benefit. Someone will be paying for that increased benefit. Is it the worker through enhanced taxes, the employer through enhanced healthcare benefit contributions, or solely the government? If solely the government, it is again not self sustaining. If it is the employer and/or the worker then the American worker under the current "post industrial" model that our esteemed Economic theorists and B school professors have successfully sold and totally implemented in this country, those jobs will not exist here for long. They will be offshored as soon as offshore employers can figure out how to do the same work abroad for a lower delivered price. More on why this is true in subsequent blog entries.

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