Politicians Can't Do Much To Restart The Economy

December 09, 2009|By Jay Hancock | Jay Hancock , jay.hancock@baltsun.com

Politicians don't want to hear it, but bribing businesses to hire people won't do much to lower unemployment or get the economy growing.

That doesn't stop them. Elected officials, who take credit for the sun rising and the movement of the tides, have to look like they're doing "something" - something that seems related to the economy and that gnat-brained citizens will remember next year when they vote.

On Monday, at a "small-business summit," Gov. Martin O'Malley proposed a $3,000 tax credit next year for each unemployed Marylander companies hire. He also wants to devote $10 million to guaranteeing small-business loans and do something about rising unemployment-insurance rates.

President Barack Obama, too, is talking about boosting small business. After all the welfare paid to really big business recently, politicos are trying to look as though they sometimes work for constituents who don't throw $500-a-plate fundraising dinners.

In a Tuesday speech, Obama said he wants to extend small-business tax write-offs. Like O'Malley, he would like to give tax incentives to companies that hire people as well as spend more on transportation.

It's the "political business cycle," identified by economists decades ago. The ruling party tries to juice the economy just before the election so cash-happy voters keep it in power. Republicans, who presided over the two worst financial crashes in a century and got plastered in the 1932 and 2008 elections as a result, haven't quite figured out the game.

There's nothing wrong with government stimulus in the right time and measure. Republicans like to cut taxes. Democrats like to spend on projects. Both methods usually increase deficits.

The enormous $800 billion stimulus passed by Congress in February was a justified response at a time of extraordinary uncertainty and danger. The package probably kept this year's economic and financial pain from being much worse.

Any follow-ups, however, look like they'll be more for show than effect. Washington and Annapolis have neither the will nor the capacity for more heroism.

O'Malley faces another budget gap of more than $1 billion for the fiscal year that begins in July. Unlike Obama, he can't finance the operating budget with borrowed money.

He has promised to spend no more than $20 million on the tax credits for hiring the unemployed. That pays for about 7,000 hires, which would lower Maryland's unemployment rate from 7.3 percent to 7.1 percent, everything else being equal. Many would probably have been hired without the incentive.

O'Malley's promise to do something about rising unemployment-insurance premiums is welcome but won't have a big economic effect, either. A third proposal, getting the credit system moving by increasing state loan guarantees, is the right idea. Again, however, the dollars offered aren't substantial.

Obama doesn't have much room to move, either. Next year's projected deficit is already beyond gargantuan. Hardly anybody in Washington is pushing for a new job-creation program costing anything close to this year's stimulus.

On Tuesday, Obama talked about helping small business with money left over from the bank-bailout slush fund. But an extra $100 billion or so in small-business lending won't do much to move the needle on a $14 trillion economy, even assuming the money is spent productively.

Obama isn't prepared to administer powerful hiring stimulus. O'Malley can't afford it. How about we get out of this slump the old-fashioned way?

It's up to you, businesses. The crisis is over. Americans have been saving and have money to spend. Don't worry whether politicos throw you a tax break. Hang out the "Help Wanted" signs anyway.

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