Try A Second Dose

Another Stimulus, Focused On Tax Credits And Jobs, Is What This Economy Needs

July 21, 2009|By R. Thomas Buffenbarger

With the number of unemployed and involuntarily idled workers nationwide rising above 30.2 million, America's manufacturing sector is showing signs of "economic hypothermia."

The symptoms are unmistakable. When a drop in body temperature sends the human body into hypothermia, extremities shut down first, and eventually even the core succumbs. Similarly, manufacturing in many states appears to be entering a "metabolic icebox" phase. It's turned blue. It shows little sign of life.

But it is not dead - not yet, at least.

To resuscitate this endangered sector, the U.S. government must act, performing recession triage much as an ER team would. The Economic Recovery Act, with its $787 billion mix of spending and tax cuts, was a strong first step. But even President Barack Obama recently acknowledged that it has not yet produced nearly enough jobs.

More than a dozen key economists, including Nobel Prize winners such as Paul Krugman and Robert Solow, have reached the same conclusion: that President Obama's first stimulus was, as Mr. Solow put it, "too small and too late." Even Warren Buffett says our economy may need a second stimulus.

Indeed, it does - and manufacturing should be its primary target.

"Rebuilding manufacturing offers one of our best options for recovering from the current recession," says senior economist Robert Scott of the Economic Policy Institute, "because it will create good jobs for millions of Americans who now languish on unemployment."

American manufacturing already has dropped about 20 percent this decade, according to a new report from the Milken Institute.

Nor should we regard American manufacturing as an anachronism. As report author Perry Wong notes, "People don't understand that manufacturing is an integral part of the high-tech and clean-tech economy."

Our trading partners already have been burned buying our toxic debt - credit default swaps, collateralized debt obligations and subprime mortgages. They won't buy another trillion dollars in Treasury notes just because they're stamped "Made in America."

Instead, we need to start making things that other people will actually want to buy. That's why we need a treatment protocol to recover from this deep freeze in industrial production, and we need it now.

Step one: thawing the patient. We should wrap manufacturing in a protective blanket - not taxes and tariffs, but incentives for firms to renovate plants and purchase state-of-the-art tooling.

We could inject billions of dollars into such modernization via two investment tax credits: a 10 percent credit for the rehabilitation and renovation of existing manufacturing facilities and an additional credit for new equipment. If those tax credits could be banked to offset downstream profits, and given a two-year-sunset provision, it would spur a burst of investment and create millions of new jobs.

Just as a hypothermic body shuts down segment by segment, manufacturers are reducing production runs, closing product lines, canceling shifts and ultimately laying off workers. That's why a second stimulus should include a massive employment initiative - a modern version of FDR's Works Progress Administration, which put 3.5 million Americans back to work during the Great Depression.

Laid-off workers need opportunities to upgrade their skills, and their children need a clear career pathway from high school through community college and apprenticeships. We should offer two years of technical training, tuition-free, to recent high school graduates and recently unemployed adults.

Finally, let's lend smaller manufacturers enough money to produce and stockpile 60 days of inventory, so that when demand picks up, they can meet it. They can repay the government once orders start flowing again.

And at all levels, we need governments to expedite orders on everything from ships to snow plows, and to encourage people to "Buy North American." That's not a protectionist slogan - it's a realistic solution.

Some, of course, will argue that we can't afford a second stimulus. But given the fact that economic hypothermia could be fatal to manufacturing, what we really can't afford to do is nothing.

R. Thomas Buffenbarger is president of the Upper Marlboro-based International Association of Machinists and Aerospace Workers.

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