Jobs and incomes are the source of any real recovery. We won't say the bailout money has been squandered, but we will say all the sacrifice is being extracted from the worker and the taxpayer. To Robert Reich's list below, we would add some more aggressive measures, like the CCC style employment programs envisioned in the Humphrey-Hawkins bill. Watching people suffer and reading the Dow as if it were their vital signs is mismanagement.

Specifically, What Should Be Done For Jobs?
by Robert Reich
October 8, 2009

In his Saturday radio address, President Obama acknowledged the White House is exploring "additional options to promote job creation.” It's about time. This is the worst job market in seventy years -- including the longest duration of steep job losses.

If anyone had any doubt that something far more dramatic must be done, listen to former Federal Reserve Chairman Alan Greenspan. He warned Sunday against further stimulus because “we are in a recovery, and I think it would be a mistake to say the September numbers alter that significantly.” Greenspan has turned into an inverse soothsayer. After his cataclysmic error about where the economy was headed before the meltdown, his views about the future should be carefully noted as being the exact opposite of what's likely to be in store.

The economy may be in a technical recovery but this is not a real recovery and the "green shoots" or "positive signs" that Wall Street cheerleaders love to shout about are phantoms of their ever-optimistic imaginations. The stimulus is working but it is far from adequate. Before the stimulus, we were losing more than 500,000 jobs a month. Now that 40 percent of the stimulus has been spent, we are losing more than 250,000 jobs a month.

What to do? With the debt ceiling approaching and the gravitational pull of the 2010 elections increasing, the White House can't go back to Congress with a formal bill to enlarge the stimulus package. Four simpler moves would be to:

(1) Use existing authority under both the stimulus package enacted earlier this year and the nefarious TARP bailout fund -- extending and combining them into a fund to make up for state and local cuts in public school budgets, childrens' health, public health (we need workers to administer swine flu vaccine) and public transportation. Instead of bailing out banks and giant automakers, we should switch to bailing out public services that average people need.

(2) Propose a one-year payroll tax holiday on the first $20,000 of income. Republicans as well as Blue Dog Dems could go along with this, and it would be a highly progressive tax cut since 80 percent of Americans pay more in payroll taxes than they do in income taxes.

(3) Give small businesses a "new jobs tax credit" for every net new job created over the next year. Granted, under normal circumstances this sort of jobs credit doesn't have much effect, and it's difficult to separate hires that would have happened anyway from net new ones. But we're not in normal circumstances; small businesses, which are responsible for most new jobs, still aren't hiring. They need a boost.

(4) Dramatically expand the Small Business Administration's lending programs and have the Fed buy up the SBA's debt. Big banks are not lending to small businesses. TARP has been an utter failure in this regard. The SBA and the Fed should circumvent them and help small businesses get the capital they need, so they can start hiring again.

The politics of these four steps aren't difficult. It would be hard to get a new stimulus package through Congress, but no member who's up for reelection next year when unemployment is likely to be in double digits wants to be accused by rivals of voting against steps to help small businesses, public schools, childrens' health, and average working people who need a tax cut.

After some context from Robert Reich and Adam Posen, we get directly into what will happen next. What will happen to the economy, not so much the stock market. The markets continue their decline -- toward six thousand on the Dow and six hundred on the S&P.
Robert Reich encapsulated the bad news last week

The U.S.economy contracted in the 4th quarter of 2008 more sharply than initially estimated. Consumers cut spending the most in over 28 years. Businesses cut way back as well. Exports were dead in the water.

All told, according to the new Commerce Department data, the nation's economy shrank at an annual rate of 6.2 percent. Last month, the government's preliminary estimate was only 3.8 percent. Roughly half the revision was due to a sharper drop in business spending than had been anticipated. As a result, business inventories -- the amount of stuff they they have on hand to sell -- have dropped. That's good news because eventually businesses will have to replace their inventories, in anticipation of at least some consumer buying, and such replacement spending will spur the economy. But here's the bad news: Inventories still aren't dropping as fast as sales are dropping, suggesting even less business spending and investing coming up.
Keep your eyes on the gap between what the economy could produce at full employment and the paltry level of aggregate demand (consumers plus businesses plus exports). That's why the stimulus is too small -- and why Reich is betting the President will be back for more stimulus.
There's no reason to suppose the 1st quarter of 2009 will be any better, and lots of reason to think it will be worse. Government is spender of last resort. We're at the last resort now. $787 billion over two years, and only two-thirds of it real spending, is way below what will be needed to get the economy moving back toward full capacity. Do Republicans know this? Is this why they're continuing to bet that the economy won't be recovering by November, 2010, and why they're going to continue to say no?

And from Adam Posen, whom Paul Krugman describes as the go-to guy for understanding Japan's lost decade, some perspective on the monetary side. From testimony for a Joint Economic Committee hearing on the 26th.

The guarantees that the US government has already extended to the banks in the last year, and the insufficient (though large) capital injections without government control or adequate conditionality also already given under TARP, closely mimic those given by the Japanese government in the mid-1990s to keep their major banks open without having to recognize specific failures and losses.
The result then, and the emerging result now, is that the banks’ top management simply burns through that cash, socializing the losses for the taxpayer, grabbing any rare gains for management payouts or shareholder dividends, and ending up still undercapitalized. Pretending that distressed assets are worth more than they actually are today for regulatory purposes persuades no one besides the regulators, and just gives the banks more taxpayer money to spend down, and more time to impose a credit crunch.
These kind of half-measures to keep banks open rather than disciplined are precisely what the Japanese Ministry of Finance engaged in from their bubble’s burst in 1992 through to 1998 …

On February 24, the Conference Board reported that its consumer confidence index plummuted further in February. The Index now stands at 25.0 (1985=100), down from 37.4 in January. The Present Situation Index declined to 21.2 from 29.7 last month. The Expectations Index decreased to 27.5 from 42.5 in January.
Consumers' appraisal of overall current conditions, which was already bleak, worsened further. Consumers' short-term outlook turned significantly more negative this month. The employment outlook was also much grimmer.
Meanwhile the American Recovery and Reinvestment Act began moving federal money into infrastructure, help for states, education, unemployment extensions and other avenues.