Friday, August 5, 2011

Ending Unemployment

There has been quite a to-do about our budget lately.  Everyone thinks we need to cut more spending, and perhaps we do, but at the same time, cutting spending is doing nothing for our unemployment rate.  Quite the opposite, cutting spending almost guarnatees an increase in unemployment.  An increase in unemplyoment means a decrease in tax revenues and a decrease in consumer spending--both of which lead to more job cuts, more decreases...really, it seems like a vicious cylce.  But there may be a solution...

Before I go any further, let me point out that I am by no means a master of economics.  These are my own personal musings, based on very limited knowledge and research, and really constitute more of a hobby than anything else.  That said, consider this scenario.  What if instead of cutting spending, the US Government spent the money to hire every unemployed Ameircan (roughly 13.9 million from the information I googled.)  The average salary in the United States in 2009 (what I happened to Google) was slighly over $40,000.  I can't imagine it has changed much, so let us use $40,000 for this discussion.  To hire all those people at that salary would cost $556 billion a year.  That sounds like quite a bit, but let us consider for a moment the fact that the average unemployment benefit  is roughly $300 a week, so to pay unemployment to all those people is currently costing $216.84 billion a year.  If you also take into account the fact that people spend roughly 30% of their pay on various taxes (both state and federal) you would realize that taxes would reclaim $166.8 billion of the $556 billion.  If you were to subtract the "savings" from unemployment and taxes, you would find the cost to end unemployment would be roughly $172.36 billion a year or $14.36 billion a month.

Where could we possibly come up with $14.63 billion a month?  It is fair to say that the wars we are fighting are costing over $10 billion a month.  Also, the so called "Bush tax cuts" cost roughly $3.083 billion a month.  If we eliminated the two, we would nearly have enough to end unemployment.

But wait!  $40,000 is more than generous to someone who is currently unemployed.  I'm sure they could just as well get by with $30,000, right?  If you did the same math,  you would find that ending unemployment by hiring everyone at $30,000 a year would cost (less taxes and unemployment "savings") a total of $75.06 billion a year or $6.255 billon a month.  We could keep the "Bush tax cuts" in place, still fight some war and pay for that plan.

Surely those of you who are against so-called "entitlement programs" are now fuming at the idea of the government hiring all of the unemployed.  Perhaps you are asking "hire them for what?"  All fine questions, but I have an even better plan.  What if instead of simply paying these unemployed people $30,000 a year for however long the progam ran we encouraged private businesses to hire these people.  How you ask?  We offer to pay $10,000 a year for each person hired--in essence, we offer to pay $10,000 of their salary.  If we could find a private job for each person through this incentive program, it would cost $139 billion a year or $11.583 billion a month.  If you factored in the "savings" in a salary range of $30-40k a year, the incentive program would actually turn a profit of $16.912-20.387 billion a month.  For those of us too lazy to do the math, that would translate to savings of $202.94-224.64 billion a year or $2.0924-2.2464 trillion over 10 years.

So, to recap, we could afford to put every unemployed American to work for less than we are spending each month fighting wars overseas.  We could create an incentive program and pay companies $10k a year to hire every unemployed person and it would actually (through tax generated and savings in unemployment) create a surplus which is as much as the government is currently looking to cut from our spending.

Now, I need to address the taxes and the unemployment as I have been muddling state costs and federal costs.  This is true.  However, think of it this way.  If the states saw increased revenue in taxes and decreased cost in paying for unemployment, those savings just as easily translate to the federal government.  The federal government could simplmy adjust the amount of aide given to those states so it all balances out on the federal side of the equation--that means they could cut spending and the math would still all work out as I described above.

There are considerable benefits to my plans.  The idea of ending unemployment is ladden with benefits.  It would lead to increased spending as well as increased tax revenue.  This would increae profits for corporations which could surely have a positive impact on our ailing stock market.  An end to unemployment could also decrease crime which could have other untold savings.  The incentive program I descibred could encourage the corporations that are currently sitting on record profits to invest in hiring--something they are hestitant to do in this uncertain economy--which would mean the jobs being created are private sector jobs.

Again, I know very little about economics, and as you can see, I gathered most of my "information" from Google.  I also know that the chance of a plan like this getting bipartisan support from a budget slash happy government is a pipe dream at best.  That said, I challenge anyone that reads this to come up with a better plan to get our economy back on track.