10,000 Calls an Hour

That’s how many telephone calls hit the New York State unemployment office on January 6^th before the system, including the Internet, crashed. Seems that North Carolina , Ohio , Michigan and Pennsylvania had the same problem with other states likely to follow. The jobless numbers were rising fast. After Alcoa Aluminum announced that they were laying off over 15,000 employees and contractors on January 7th, the Department of Labor announced (on January 9^th) a whopping U.S. unemployment rate for December of 7.2% (524,000 jobs were lost – a total of 2.6 million net lost jobs for all of 2008), the worst numbers in 16 years and half a percentage point higher than November's rate.

If you add in the number of people who want jobs but have given up looking to those who are seeking full-time employment but are only able to pick up part-time work, the number rises to over 13.4% (what the government calls the “alternative measurement"), which also does not take into consideration pay-cuts and reduced overtime. We are rapidly creeping toward near-double digit basic unemployment, with a concomitant increase in the “alternative measurement” as well.

Add to this mess the “earnings warnings” issued by any number of major companies – that they expect declines in profits or outright losses in the coming quarters – with the losses and opportunistic “write downs” (companies’ using a down year, where no one’s stock is working, to write off assets and correct the balance sheet so the future will look better), and the prospect for future lay-offs seems to be accelerating. As the President-elect said on January 8^th: "In short, a bad situation could become dramatically worse."

Why are job losses and falling corporate earnings a “wake up” call to Washington ? Because Obama’s proposed one year tax credit to businesses that create new jobs might actually be too indirect to implement the job creation that is at the focus of that effort. Why? If companies are experiencing losses or marginal profits, they already aren’t paying much, if any, in the way of income taxes. And losses are growing, and under tax laws, these losses can be carried into future tax years. So why would a business that is losing money (and not paying taxes anyway) care if it received a tax credit against earnings that it isn’t generating? The last stimulus package – paid to individual taxpayers early last year – had virtually no impact of restraining the economic fall.

Further, companies that have furloughed employees but intend to bring them back anyway might have another way of saving money without actually creating any new jobs. Bottom line, if you need to create more jobs, how about just creating more jobs? The following, reported in the January 9^th New York Times, summarizes how many Democrats felts after meeting with senior Obama advisors the day before: “‘There is only one thing we have got to do in the stimulus, and that is how can we create jobs,’ said Senator Tom Harkin, Democrat of Iowa, as he left the meeting. ‘I am a little concerned by the way that Mr. Summers and others are going at this in that, to me, it still looks like a little more of this trickle-down, if we just put it in at the top, it’s going to trickle down. A number of people in there said, ‘Look, we have got to have programs that actually create jobs and put people to work.’ ’”

The new administration has touted infrastructural projects, training and hiring more teachers and creating new jobs through supporting research and development, but its announced initial efforts seem to rely more on the indirect effect of tax incentives. It would seem that the direct approach (through direct hires or the engagement of contractors that will need to hire many new employees to implement government contracts) is both more certain and will result in faster job creation than expecting companies with losses or low earnings – where consumer demand is at a 26 year low – to hire new employees simply to get a tax credit they cannot use in an economy where they might not even be able to sell what the new employees will create.

This approach “tax incentive” policy is a possible waste of valuable stimulus money and a charge to taxpayers that might add to the failed policies of the first Troubled Assets Relief Program (the $700 billion bailout that did little to stop the meltdown and unfreeze the credit markets). By the time we find out if this works or not… we may be in a vastly worse economy.

I’m Peter Dekom, and I approve this message.