CNN iReport

Within the coming weeks and months, America will see its unemployment rate shooting into the sky. Double digit numbers will be the norm for a few years to come. In light of the severe downturn, the question is what could be done? In my article series, I have so far established $1000/month income/cost gap of the average American as the root cause of the economic problem. Some bold proposals try to address the gap through governments because market mechanisms fail. Without such steps, the economy looses at least 27% of activity plus what's materializing from rising unemployment. The last article was aimed at containing the biggest risk factor for the economy stemming from the derivative market in the financial sector. What to do with the unemployed is a matter of wild debate amongst economists. The provisions range from food stamps, to UI benefits, infrastructure spending, aid to states, payroll tax holiday, (non) refundable tax rebate, tax cuts, cut in capital gain tax, and some other minor "cooking the books" provisions. I think that many are pointing into the wrong direction of building dependencies to states. I am not discussing the not-willing-to-work here, but rather the unemployed, able but willing to work. Food stamps and UI benefits point too much at the not so willing. Idle workers are prone to social unrest, and that's probably the last of scenarios that America wants to find itself in. There are three direct stimulus options that are not in the mainstream economic handbooks that could be summarized as "Sweeping up the unemployed": 1) temporarily employ people through emergency state employment programs in order to build infrastructure (vs. UI and foodstamps) 2) provide interest free loans for education and re-education that need paying back with starting of employment and carry interest rates 5 years thereafter. Such loans can and should include modest living cost. 3) expand the military work force The Federal Government, states and communities need to create or accelerate investment programs to temporarily provide employment (not jobless benefits). States might argue that they don't have enough projects for all the unemployed or that they don't have the administrative infrastructure to handle that, that they don't need the qualifications of the unemployed or worse, that they don't have the funds. The Federal Government will have to make sure that funds are available and the administrative power has to be built. It's part of the stimulus. The approach to education should have been to create equal opportunities for all Americans. We know that they have not. The economic downturn allows for just that. If financing is available and affordable, anyone is given the opportunity. I am not a big fan of "community work" programs in order to pay for student loans. After all, studying typically provides for higher future incomes. With that, it will be easier to pay back loans and with a good grace period, only few will not be able to repay the investment into them. The Federal Government will have to provide the funding for those education programs and will have to finance it. It's the best investment into the future, far better than an erratic $700 billion bailout. The argument will be that the education system is not prepared for such a run. Prepare it then. It's also part of the stimulus. While the military sounds counter intuitive as a means to sweep up the unemployed, it is not. The key with three approaches is that the working American is not going to be faced with wage deflation because of increased competition from the unemployed. What is needed is wage inflation. It's a matter of "depleting" the unemployed force to below 7% in order to avoid millions of families in dire situations followed by widespread unrest. I guess, mainstream economists would term it tweaking the supply side. This all comes at a cost. My next article will be about "bailout the state governments". There, we will have a look at the impact on state budgets and how the deficits need to be financed. The last thing state governments should do now is to cut cost. This article is part of a series of articles focussing on what local, state and federal governments need to do now in order to address the upcoming economic Depression. economic stimulus (1): the disabled consumer at http://www.ireport.com/docs/DOC-132064 economic stimulus (2): focus on income and equity at http://www.ireport.com/docs/DOC-132067 economic stimulus (3): quarantine risk at http://www.ireport.com/docs/DOC-132200 economic stimulus (4): sweep up the unemployed at http://www.ireport.com/docs/DOC-132202 economic stimulus (5): bailout state governments at http://www.ireport.com/docs/DOC-132205 economic stimulus (6): protect food and energy supply at http://www.ireport.com/docs/DOC-132795 economic stimulus (7): invest into the future at http://www.ireport.com/docs/DOC-132856 economic stimulus (8): be globally the most competitive at http://www.ireport.com/docs/DOC-133022 economic stimulus (9): change politics at http://www.ireport.com/docs/DOC-133026 economic stimulus (10): prepare for budget cuts at http://www.ireport.com/docs/DOC-133113 Please comment. I will try to address questions, if I can. H.R. Tschudi, economist and entrepreneur, Vancouver