What Is Washington Doing to Fix the Labor Market?

“The Financial World According to Inya” Column,
by Inya Ivkovic, MA

The Jobs situation in the U.S. has become dire indeed. Thankfully, President Obama has an appealing and feasible solution to the problem, which involves recycling loans made to major U.S. banks at the worst of the recession and splitting the money between paying back the Treasury and the labor market. Apparently, the banking sector is recovering nicely, while unemployment remains at historic highs, promising to stay at that level well into next year and beyond. It only makes sense to put the money intended for the benefit of the financial system to work for the benefit of the entire society.

More specifically, President Obama wants to see cash incentives put into place, such as an incentive for doing energy-saving renovations on homes, giving more significant tax breaks to small business to hire more employees, and wants to give more money to cash-starved states. In his speech at the White House on Tuesday, among other things, President Obama said, “…some of that money can be devoted to deficit reduction. The question is, are there selective approaches that are consistent with the original goals of TARP, for example, making sure that small businesses are still getting lending that would be appropriate in accelerating job growth?”

Many have doubted the economics of the U.S. Troubled Asset Relief Program (TARP). The Program has been entangled in controversy since day one, and many believed — myself included — that it was a terrible losing proposition for the government’s $700 billion of taxpayers’ money. It turned out that TARP remained a losing proposition, although not as bad as initially thought.

According to the government’s recent calculations, it will retrieve all but $141 billion out of the $700 billion it initially lent out. Previously, the government said it would be satisfied if half the money was repaid, having in mind the health, or lack thereof, of institutions such as AIG, Bear Stearns, General Motors, Chrysler, etc. However, speedy TARP paybacks by financial institutions have already been returned about $70.0 billion to government coffers, while, by the end of 2010, the government expects to collect about $175 billion. Note that, so far, about $450 billion of TARP money has been expended, while the remaining $250 billion is unused.

Why the government is worried about jobs is reasonable. Since the U.S. and global economy hit the proverbial six-foot brick wall two years ago, about 7.2 million Americans have lost their jobs. Many have given up looking for jobs similar to what they had and have gone back to school or are working menial, often low-paying part-time jobs, and sometimes two or three at the same time just to make ends meet.

President Obama’s goals are both noble and politically wise. However, by not speaking about the elephant in the room, the U.S. deficit crisis, the risk is that his noble efforts will be severely undermined, if not completely erased. In comparison to U.S. deficits, including Social Security, Medicare and Medicaid, TARP itself is nothing more than a sideshow and TARP unused money nothing more than pocket change.

According to the Center on Budget and Policy Priorities (CBPP), the federal deficit is out of control, and will be unsustainable if left on current track. If the trend is not reversed, by 2050, total government debt will hit 300% of the GDP. To put things into perspective, currently, the government debt takes a 62% portion of the GDP.

So, yes, President Obama is right to worry about American jobs, because the labor market represents one of the strongest engines driving this economy. However, any headway made on the jobs front will be completely eclipsed by the country’s debt situation unless something is done about it now or as soon as possible.