The first Monday of every September, our nation takes a day off from work as a way to show thanks for those that work and propel our economy. However, this particular Labor Day is somewhat bitter sweet because of the sluggish job numbers. The economy has been improving, adding more jobs to the private sector than previously expected; however, the unemployment rate stayed around 9.5%. In the later stages of the worst economic situation since the Great Depression, millions of people are still unemployed and looking for jobs.
When President Obama took office, the recession was beginning to show serious strains on the economy. In desperation to not let the recession turn into a depression, Congress enacted a stimulus package close to $800 billion dollars. Criticism was met from the left and right whether the package was aimed at the right targets. Liberal leaning policy makers argued for more government backed work projects while conservative law makers pushed for more tax breaks to stimulate the supply side of the economy. What was created as the final product was a package that was made up of tax breaks, tax credits and public works projects as a way to hit the recession head on and really fight it so people can stay in work and really have a reason to enjoy their day off on Labor Day.
In the beginning of 2009 when all the projections about the stimulus package was made, many left out probably the most important fact about the economic situation. The Congressional Budget Office estimated that the hole in the economy left from the recession would be close to $3 trillion dollars. I am not a mathematician, but the difference between $3 trillion dollars and $787 billion dollars is a huge sum; $2,213,000,000 to be exact. Think of it in like this. The American economy is worth close to $12 trillion. The hole that would have been left without any stimulation package would have been about roughly a fourth of the entire economy.
When economic reports show that the job finding rate is lower than originally projected, it should be no wonder why. To show faith to the people suffering from the recession, President Obama introduced a proposal to help create jobs and stimulate the economy. His plan is to invest $50 billion dollars into shovel-ready projects, such as improving our roads, railways, ports, etc. His plan also consists of a tax credit for all businesses to write off all inventory purchases. This means if a company buys a computer, they can write it off as a tax deduction.
Why is this proposal effective? The most important piece of knowledge learned in an introductory econ class is that people respond to incentives. Currently, the biggest problem to the economy is that businesses are sitting on money because they are unsure of future economic conditions. If businesses have an incentive to spend money, they will invest into new inventory, and this will increase the amount of money that circulates through the economy. Obama’s proposal has been met with excitement from both liberal and conservative economist. Conservative economist Greg Mankiw feels that this plan heads the economy into the right direction .
With bipartisan support from economist, there is no way this plan will be met with opposition, right? Why would a law maker want to vote against tax credits for businesses and help put people back to work? The answer to that is there has been a great deal of populist anger manufactured at the government. People are unwilling to let the government create jobs and stimulate the economy. If this attitude continues, Labor Day will have a new meaning. We will honor those that have jobs simply because it is amazing that they were able to get a job.
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