U.S. Job Growth - Five Programs to Revive It

How can the United States create more jobs? What are best ways to increase U.S. job growth?

Well, perhaps the best way to answer the job creation question is to first eliminate ideas that will not create jobs, i.e. that will slow the U.S. economy even more, and one sure-fire way to slow U.S. GDP growth is to try to balance the budget, short-term, in a time of economic distress.

As Nobel Prize-winning Economist and New York Times Columnist Paul Krugman has repeatedly underscored, deficit reduction long-term is a good thing, but to do it while the economy is struggling to maintain growth would simply uncut the recovery, and slow GDP growth further.

Moreover, any Keynesian economist worth his or her salt knows why this will occur: cutting government spending takes demand -- and in particular demand from consumers -- out of the economy. And when you decrease demand, the economy slows.

Of course, Congressional Republicans -- including many supply-side economists -- disagree that demand is the problem. Cut government spending and cut taxes even more, and U.S. GDP growth will accelerate, they assert. The key is investment and letting the free market work its magic.

There's just one flaw in the supply-side theory: the problem isn't 'supply' or a lack of 'investment' -- corporations are sitting on more than $2 trillion in cash -- and there are plenty of investment funds with capital -- the problem is there's no demand - not enough demand from consumers. Businesses don't have enough customers, because too many Americans are unemployed.

Given the above, the key to stronger economic growth -- including the growth that creates jobs - is increasing demand, and that will require an increase in government spending, not a decrease. Again, long-term, the nation's goal should be a balanced budget, but in the short-term, it makes little GDP sense to reduce demand in a weak economy.

GOP: Repeating the 'Mistake of 1937'?

To be sure, some investors/readers will argue that cutting government spending/with deficit reduction immediately, in 2011, in a period of weak GDP growth, will strengthen the economy.

Well, for those who believe that, go back and researchthe 'mistake of 1937.' Today's Congressional Republicans are proposing almost exactly the same policy that Congressional Republicans did during President Franklin D. Roosevelt's effort to continue New Deal stimulus to pull the U.S. economy out of the Great Depression.

Under pressure from Congressional Republicans, FDR gave-in to conservatives and cut government spending in 1937.

And do you know what happened next? You guessed it: the U.S. economy, which had registered impressive GDP growth in the first four years of the New Deal with unemployment dropping from 20.6% to 9.1%, retrenched, GDP growth slowed and the unemployment rate rose, to 12.5% in 1938. Cutting government spending prematurely hurt the U.S. economy in 1937, and it will hurt the economy in 2011, if Congressional Republicans have their way.

Thankfully, for the U.S. economy and for Americans seeking work in 1938, FDR saw his mistake, reversed his policy in 1938, returned to Keynesian economics and increased spending, and the U.S. economy resumed recovering from the Great Depression, with the unemployment rate dropping to about 8.0% prior to the outbreak of World War II.

Next, massive U.S. government spending for mobilization during World War II would then lower the unemployment to a minuscule 1.2% in 1944!

If you need another example of how a large increase in government spending can increase GDP growth see China and Europe. At the outbreak of the latest recession, China increased governement spending in a big way -- with a large stimulus package. How's China's GDP growth now? Conversely, Europe's euro-zone, after a brief period of stimulus, has implemented austerity measures, some of which were warranted. How is Europe's economy doing now?

At Issue: the Best Way to Create More Jobs

In sum, one thing U.S policy makers should not do in 2011 is cut government spending in a big way, short-term: that almost certainly will slow U.S. GDP growth more, if not tip the world's largest economny back into a recession.

But the above describes what to avoid. What can the nation do to create jobs?

Well, taking another page out of economist John Maynard Kaynes' play-book, the U.S. Government can deploy a series of public works projects to -- you guessed it -- increasing demand and create jobs.

Moreover, there's no shortage of work that needs to be done and literally millions of Americans available and willing to undertake the work.

Here are a few ideas:

1-Infrastructure Rebuilding - Highways, Roads, Bridges. The nation's infrastructure is in a state of disrepair. The U.S. will probably experience more highway bridge collapses like the one that occurred in Minneapolis in 2007, which killed 13 people and injured 145. The nation must rebuild and expand its infrastructure to meet the commerce demands of the 21^st Century. Cost: $500 - 750 billion.

2-Increases in Funding to Secondary Schools, Community Colleges - Congress could establish a special federal education fund to both decrease class size and increase the capacity of community colleges -- the latter of which could serve as a critical re-training resource for the tens of millions of Americans who will need to be re-trained to obtain the skills required for the technology-based 21^st century U.S. economy. Cost: $200-250 billion.

3-Smart Grid/Electric Grid/Internet - Speaking of technology, if Congressdeploys federal funds to build a smart the nation will become more energy-efficient. Further, the electric grid needs to be expanded as well, given the fact that a simple heat wave in the summer tends to strain the grid. And expanding broadband access to universal status can only make the economy more efficient and increase job opportunities to those who presently lack it. Cost: $150-$250 billion.

4-Airports/Rails/Public Transportation - Anyone who's flown in the U.S recently knows that most of our airports are at/near capacity and/or are antiquated. Simply, the U.S. needs to build more airports and expand/modernize others. The same for the nation's rail system. Further, increased funding for light rail and for natural gas/alternative fuel buses will reduce the nation's imported oil bill and highway congestion. Cost: $200-350 billion.

5-Next-Generation Car - The United States could expand its public/private partnership to speed the introduction of that game-changing, next-generation car, be it electric-, fuel cell-, or natural gas-based. The federal government could concentrate on the costly basic research that companies can't afford, and the auto makers could concentrate on design and features. Cost: $50-80 billion.

To be sure, the above investments are not cheap. They'd cost $1.1 trillion - $1.68 trillion, but even if only one or two are deployed, that would still increase both U.S. GDP growth and job growth.

Again, it's great when the primary engine of job growth, corporations -- both large and small -- are deploying capital and creating jobs. But they have not done so en masse during the current recovery: they've basically sat on $2 trillion in cash.

Further, the answer is not tax cuts on businesses to increase capital: corporations and the U.S. financial system are awash in capital.

The problem is not capital or product supply: it's demand. Hence, policy makers need to take action -- public or private -- to increase demand, and get this economy moving again, to create the millions of jobs the American people seek.