A better stimulus package
A better stimulus package
that is focused on those who are hurt the most by economic recession
I am not a big fan of federal stimulus packages, but I know that we are going to get one every time we have a national economic recession. I understand the logic of stimulus packages, but I do not agree with them (at least as they are currently implemented).
During economic recessions, the federal government often spends significantly more money in the form of an “economic stimulus package.” Unfortunately, as it is usually practiced, economic stimulus packages are largely partisan giveaways to interest groups and voters.
Every program that a political party supports but cannot get the necessary votes in Congress is bundled together in one package that is called an economic stimulus package. For Democrats, this invariably includes largely social spending. For Republicans, this invariably includes tax cuts. The balance between the two strategies is largely determined by which party controls the Presidency, Senate, and House.
One of the big problems with federal stimulus packages is that they are rarely focused on those most hurt by economic recessions. Typically, wages do not go down during economic recessions. Employers are worried about hurting worker morale by cutting employee wages. Typically, employers cut costs by canceling unnecessary projects and laying off workers. So the negative impacts are heavily concentrated on the unemployed.
The usual result of economic stimulus packages is a massive giveaway to people and institutions who are largely unaffected by the recession. While in previous generations, employers would cut wages during a recession, today they rarely do. While recessions always create fear among the employed of losing their jobs, it is those who lose their jobs that absorb almost all the costs of a recession.
Because I worked in the digital technology sector where workers typically change jobs frequently, I have been unemployed on several occasions. Fortunately, I always had substantial short-term savings and was able to stay out of debt. I always found a way to find a new job relatively quickly, but many unemployed people have a difficult time. This is particularly true during economic recessions.
Unfortunately, very little of the spending and tax cuts in a typical stimulus package goes to the unemployed. Tax cuts largely benefit middle- and upper-income workers. The unemployed receive little to no benefits as they no longer have an income. Spending programs largely benefit government employees, contractors, and a few targeted interest groups. While stimulus packages are sold as a means of helping those most hurt in a recession, the results radically differ from the rhetoric.
In addition, the long-term economic benefits of economic stimulus packages are dubious at best. While some of the programs in stimulus packages create long-term economic benefits, far more consist of spending money with no long-term benefits.
By increasing benefits for means-tested programs during a recession we are undermining the incentive to look for a new job. This is also true for increasing the amount and duration of Unemployment Insurance. Every benefit that helps lower-income persons reduces their incentive to invest in themselves.
And those who sell the benefits of economic stimulus packages conveniently forget that we must pay the price with interest at a later date. If one believes that economic stimulus packages create short-term economic growth, then one must also acknowledge the negative economic effect of paying back both the principal and the interest at a later date.
Rather than creating economic growth, it is more accurate to state that economic stimulus packages shift economic growth from the future to the present. This is obviously to the benefit of politicians who want to get reelected and will likely be long gone when the bill comes up, it is less clear for the American people.
See more articles on Upward Mobility:
Why Progress and Upward Mobility should be the goal, not Equality
The Pathway to Success (first of three articles in series)
I also will be writing a significant number of excerpts from my forthcoming book: Upward Mobility: A Radical New Agenda to Uplift the Poor and Working Class. Most of these excerpts will only be available to paid subscribers.
Other books in my “From Poverty to Progress” book series:
Assisting the Unemployed
The most important social program to assist the unemployed is Unemployment Insurance (UI). Typically, extending benefits for UI recipients is a key part of federal stimulus payments. While there are trade-offs to doing so, I generally think that this is a good policy. I do believe, however, that we can do a much better job of helping the unemployed to get retraining and relocate to more dynamic metros.
Our Unemployment Insurance system is no longer sufficient to help workers transition back into the workforce after being laid off. UI was initially created in the 1930s on the assumption that unemployment is largely a seasonal or cyclical event. Workers who lost their jobs were expected to be able to go back to their old jobs after some time.
A few generations ago, this was a valid assumption. Manufacturing plants typically laid off a large number of workers at the beginning of a recession and then rehired them at the same plant less than one year later. In addition, fishing, timber, and construction industries employed many workers seasonally. Workers in those industries without jobs during the off-season could expect to be rehired by their employers within a few months.
Unfortunately, this assumption is no longer true, except for a small minority of the unemployed. Today few workers are rehired by the same employer within a short period. In reality, the unemployed today face very different types of challenges. Our current UI system is doing little to address the new situation.
The unemployed can be divided into four groups based on the economic opportunities within their locale and their job skills:
Those living in relatively prosperous areas and having skills that employers are looking for in the long term. This group requires temporary income support while they look for a job in their current field.
Those living in relatively prosperous areas but lacking in job skills that employers are looking for. This group requires job training plus temporary income support.
Those living in areas with few economic opportunities, but having desired skills. This group requires assistance relocating to areas with greater economic opportunities plus temporary income support while they look for a job in the new locale.
Those living in areas with few economic opportunities and lacking job skills. This group requires both job training and assistance in relocating to areas with greater economic opportunities.
Our current Unemployment Insurance system works relatively well for workers in the first group, but it fails workers in the other three groups.
Upward Bound accounts
Fortunately, if we integrate my proposed Upward Bound accounts into our unemployment system, we can offer the other three types of u employed some very real benefits at relatively little cost to the taxpayer. If you have not yet read my article where I argue for Upward Bound accounts, I would do so now.
As a quick refresher, Upward Bound accounts are debit accounts similar to Health Savings Accounts (HSA), except they only allow individuals to make withdrawals that are proven to promote their long-term upward mobility:
Long-acting reversible contraceptives.
Tuition for secondary school or university
Job training and certification programs
Relocation to a city with more economic opportunities
Purchase of a used car
Down payment on a house.
Some of these items are not necessarily useful for the temporarily unemployed, but many of them are exactly what the unemployed need.
Upward Bound accounts specifically designed to encourage people to invest in their future and provide economic assistance to those who do so. The program is primarily designed to target youths from below-income families, but there is no reason why we cannot include the unemployed as well.
Unemployed persons in the last three groups that I listed in the bulleted list above are in much the same situation as low-income youths. They must invest in relocation or skills acquisition and lack in economic resources to pay for them. Not only would the individual benefit from these investments but so would society.
I propose that any person who qualifies for UI benefits should receive a $5,000 contribution to their Upward Bound account as long as they:
Were not terminated for performance reasons.
Do not already have that amount in their Upward Bound account.
Have not received an unemployment-related Upward Bound donation within the last 5 years.
These clauses are necessary to ensure that a person will not game the system by quitting their jobs to get many Upward Bound donations into their account. The amount of $5000 would enable most people to either relocate to a more prosperous metro or pay for job training (or both). Unlike UI benefits, the additional money would in no way undermine their incentive to find a job quickly.
Job-training centers
In a previous article, I argued that we need to learn from European vocational schools. Rather than focusing exclusively on going to college, we need to give less academically inclined students an alternate path to a career.
It might work something like this: Before starting 10th grade (typically when a child is 15 years old), each student and their parents must choose between two separate pathways:
College-oriented academic high school, or
Job-oriented vocational training
Each pathway would have very different goals. The goal of the academic high school should be that all students graduate college with a four-year degree by age 23. The goal of the vocational training system should be to have all students have a full-time job by age 19 in the career path of the student’s choice.
If implemented, this would create a national network of job training by non-government job training centers that were competing for vouchers. Careful tracking of results and posting those results on the internet would force those job training centers to respond to local labor conditions.
There is no reason why the unemployed could not use their Upward Bound account to pay tuition for these job-training centers anywhere in the nation. Under this new system, they would have a choice between thousands of different vocational programs in hundreds of different fields. With all the data easily accessible on the internet and with support from their parents and their local Career Centers, they are far more likely to acquire the skills necessary to promote their upward mobility than under the current system.
Better yet, the unemployed could use Upward Bound accounts to pay for relocation costs so they could start over in an entirely new career in a new and more prosperous metro area. Rather than employment being a dead end, it could be a new beginning.
A better stimulus package
In addition to the four categories of unemployed listed above, there are also overall national economic conditions. When a person loses a job during times of economic growth, the situation is fundamentally different from losing a job during a recession. A growing economy makes finding a new job much easier.
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