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| Ben Bernanke |
While it seems that the short term goal of reducing interest rates for banks and business will most probably work, is the longer term goal of increasing jobs going to be guaranteed from this strategy? I seriously doubt it. And here's why.
If you follow the demand side theories of job creation, then you would expect increase in demand to be the major factor in creating new jobs. This demand theory is supported by President Obama. Consumers are the source of new demand for business. Consumer spending is dictated by the amount of cash available to them after necessities spending. The primary source of this cash for most middle-class workers is take-home pay from a job.
If you follow supply side theories of job creation, then you would expect anything that reduces the expenditures of business should automatically allow them to spend on new hiring. The new demand part of the equation is not really important in this theory.
While some middle-class workers have 401K's the increase in the value of these accounts due to the Fed's actions will not give them any immediate spending capacity since the cash in the 401K can only be accessed after retirement without significant financial penalties.
Those elderly retired persons who have 401K's may see some immediate benefit to their cash available, but these people are already retired and are not looking for jobs. It is also doubtful that this extra cash would be a new source of demand for businesses as most retirees would probably need the extra cash for necessities and not luxury items.
It does not appear that the Feds actions today will do anything to help spur significant new demand. So the only hope of creating new jobs would be based on the Feds belief in supply-side economics.
The main recipients of the benefit of reduced interest rates and increased stock market prices are wealthy investors, banks and businesses.
One might think that with this cash, business will be motivated to grow and at the same time hire. But we know that most US Corporations are already sitting on the largest cash reserves they have had in decades. They are not using these funds to grow or hire, although some are buying up competitors businesses and consolidating the workforce by layoffs of excess personnel. This is the reverse of what the Fed is shooting for.
We also know from the history of Corporate America for the last 30 years or so, supply side economics does not work for creating new jobs. When American Corporations were allowed to have significant tax breaks, American jobs were not increased, they were actually decreased. Over the last twelve years or so, we have lost close to ten million American jobs to outsourcing to foreign countries.
One hope for creating new jobs using supply-side arguments is new small business start-ups. With low interest loans, new small business start-ups might increase, but with interest rates already extremely low, and small business start-ups not currently saving our economy or producing significant jobs, this option does not look promising.
The Feds approach to creating new jobs supports supply-side economics and from my observations at least, has little chance of creating new jobs. Millionaires and billionaires will be happy with their new cash inflow, but are very unlikely to use the opportunity to hire without demand requiring it.
In order for jobs to be created, we also need a significant increase in demand across all industries. If new technologies or new products are not being developed, then we need to support the middle-class with increased wages, federally funded jobs, returning jobs to America and other work supports to give them the ability to increase demand until government and business research brings new products to market.
President Obama's American Jobs Act meets all of these requirements. We need the Republican Congress to stop filibustering the Act and do the job that Americans want them to do. They need to approve the American Jobs Act. We Americans need to re-elect President Obama.
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