The U.S. is suffering from the worst job market in decades and by every credible economic projection that I have seen, high unemployment is likely to be around for years. Starting up the job market again is kind of like starting a fire by rubbing 2 dried pieces of wood together-you have to rub hard, you need plenty of tinder and you better be prepared to rub for a long time.

The two pieces of wood, so to speak, and the only two pieces of wood that are available now, are government incentive programs like cash for clunkers. This government incentive, temporary though it was, was effective in adding about 1.2% to 3rd quarter GDP on an annualized basis.

So, what’s needed now is many more of these programs, and I’d like to offer up a few ideas. And aside from the issue of whether global warming is happening or not, I would like to see these incentives tied to anything that will help the environment because less pollution is a good thing that will only help everyone. Old, worn out energy-inefficient devices should be exchanged for new, energy-efficient models.

  1. Cash For Appliances
  2. Cash For Computers
  3. Cash For Heating and Cooling Systems
  4. Cash for anything that makes buildings more energy efficient (windows, light bulbs, insulation, etc.)

On the tax side, because boosting consumption will help boost the demand for workers, the government should allow a deduction for a portion of interest expenses on purchases made with credit in the same way that mortgage interest is deductable for homeowners.

Putting more money in the hands of workers will also boost consumption, so certain allowing deductions for expenses involved with their job will also likely have a direct effect on how much people spend. Businesses can take deductions for business expenses so why shouldn’t this be available for ordinary workers as well?

So, deductions should be allowed for transportation, clothing and other equipment people need to do their jobs.

These programs need not be permanent. But since the jobs market is likely to stay weak for years to come, government needs to step in now and do everything possible to get the “fire” going because at this point, government is about the only game in town.

From a global perspective, boosting jobs and consumer spending is incredibly important if the U.S. is going to be able to meet its fiscal obligations. As economist Paul Krugman said the N.Y. Times today, “expenditures will consistently grow faster than revenue, eventually leading to a debt crisis,” due in large part an increase in the costs associated with Social Security.

Krugman is arguing that reigning in health care costs with heath care reform legislation is going to be essential in accomplishing this and I agree with him. But the facts are that no matter what happens the U.S. will always remain a big borrower, which implies that there will be a dependence on foreigners to purchase Treasuries.

Governments like China need to do this because they require a safe place to park their reserves. Those reserves exist because U.S. consumers buy their exports. If the U.S. consumer spends less, there will be less need for exporters to buy Treasuries and help fund U.S. debt.  And while the U.S. needs to decrease its dependence on foreign governments to fund a portion of the debt, “pulling the rug out’ could lead to a debt and currency crisis that would make today’s unemployment rate look tame in comparison.