February 06, 2009

Congress Wrangles While Unemployment Mushrooms

We have a transformative new leader in the White House, but Congressional leadership is playing the same old games as the economy seeks deeper into recession.  And the unemployment lines grow . . . and grow . . . and grow.

President Obama understands the urgency and severity of our economic problems, but Congressional leadership does not.  Democratic leaders Nancy Pelosi and Harry Reid are using the stimulus package to rewrite social policy, while Republican leaders John Boehner and Mitch McConnell push the same tax cuts that led to this fiscal crisis.

This recession is going to be longer and deeper than anyone acknowledges, but it won´t be corrected by tax cuts or social programs.  There are three ways to pull the U.S. economy out of the ditch: 1) jobs, 2) jobs, and 3) jobs.

As bad as job losses were in December and January, they are getting a lot worse.  Corporate leaders are recognizing they urgently have to make deep payroll cuts, or wind up in bankruptcy. With General Motors´ car sales down 49% in January, the ripple effects on auto suppliers and dealers are just beginning. At Davos last week, I talked with one steel mogul, who told me that with factories running at 60 percent of capacity, he was forced to lay off nearly 50,000 workers.

By the time GM´s leaders return to Washington on February 17, its $13 billion December subsidy will have vanished in a river of red ink.  That river isn´t yet close to reaching its crest. To Americans who just lost their jobs, or fear they are next to go, that five-year-old car doesn´t look so bad any more.

Meanwhile, retail sales are imploding.  During January, elite stores like Saks Fifth Avenue had virtually their entire merchandise on sale at 50 per cent or more off.  Even so, same store sales declined 24 per cent. How long can that go on without massive store closings and huge layoffs?  We´ll soon have so many empty store fronts in overbuilt malls that their owners may turn them into fitness facilities.  As corporate travel and conferences get, airlines, hotels, and restaurants will surely feel the pinch.

How do we get the economy moving again?  It won´t be with government-guaranteed 4.5 percent 30-year fixed-rate mortgages or $10,000 subsidies for new car purchases.  The recently unemployed aren´t going to buy new homes or new autos.

President Obama´s Job #1 is use the stimulus package to create jobs.  Not to change social policy, like Speaker Pelosi wants to do.  Not to reform tax policy like House Minority Leader Boehner is demanding.  And certainly not with “Buy American” clauses to appease labor unions. Foreign leaders at Davos were clear that this will set off global trade wars and lead to further job losses as major exporters like Boeing and Apple find overseas markets closed.

President Obama should ask his budget director to determine how many jobs each line item in the stimulus bill will create, list them in descending order, and draw a line when spending gets to $800 billion.  Then forget about everything else – all the pork and all the unnecessary tax cuts. Then he should insist on an “up or down” vote, and challenge liberals and conservatives to abandon their orthodox ideology and act in America´s best interests.

Part of the problem is that business leaders who create jobs do not have a seat at President Obama´s table.  Thus far, not a single business leader is part of the Obama team. The president has only held two brief meetings with a politically-correct cross-section of business leaders that provide good “photo ops.”

Here´s what happens when business leaders do get involved. IBM CEO Sam Palmisano led an initiative to build the nationwide IT and broadband network. Verified studies show this will create one million new jobs for a $30 billion investment, not counting employment created by innovative companies building on this network.  Unlike new roads that create jobs for two years, this investment offers sustainable jobs for twenty years.

Whatever happened to the millions of high-paying jobs in energy, environment, health care and information technology President Obama promised during his campaign? Our future lies in innovation, creativity, entrepreneurship and new company formation. 

Our greatest competitive advantage is entrepreneurs like Larry Page of Google and Arthur Levinson of Genentech that create innovative products and services to develop new markets and dominate them globally.  With venture capital dried up for entrepreneurs ready to found breakthrough companies, the Obama administration could create a “fund of funds” to get them started in proving their ideas, and use long-term capital gains policies to bring the financiers back to the table. 

Let´s refocus the stimulus package on putting Americans back to work so we can rebuild a sustainable, long-term economy.