U.S. Economy
Cutting federal spending in 2012 could tip the U.S. economy back into a recession, just as it almost did in 1937. On the contrary, if the federal government spent more on infrastructure and public works projects now and in the immediate quarters ahead, it would create millions of jobs, and achieve great things – like better schools, new and expanded hospitals, and an energy-efficient, smart energy grid. REUTERS

Are there time-tested ways for the United States to create more jobs? In other words, what are the best ways to deploy resources, private and public, to increase job growth?

Well, perhaps the best way to answer the job creation question is to first eliminate ideas that will not create jobs, i.e. that will slow the U.S. economy even more. One sure-fire way to slow U.S. GDP growth is to try to balance the federal budget, short-term, in a time of economic distress, amid sluggish business investment, tepid consumer spending and soft demand (or what economists call aggregate demand).

As Nobel Prize-winning economist and New York Times columnist Paul Krugman has repeatedly underscored, deficit reduction, long-term, is a good thing, but to do it while the U.S. economy is struggling to maintain growth would simply uncut the recovery, and slow GDP growth further.

Moreover, any Keynesian economist worth his or her salt knows why this will occur: Cutting government spending takes demand -- and in particular demand from consumers -- out of the economy. And when you decrease demand, the economy slows. This is not rocket science, folks: It's basic economics and you can test it in your hometown. Think about the current level of commercial activity in your hometown or county. Now think about the level of commercial activity in your town or county if a local hospital received a federal grant to double in size, from say 300 beds, to 600 beds, with an expanded clinic for physicians across the street to accommodate the increased primary care patients stemming from the Affordable Care Act. Now add federal money to refurbish 10 public schools in the same area -- building state-of-the-art science, mathematics, and computer labs. Do you think commercial activity would increase in the aforementioned town or county? You think you'd an increase in job growth? Without question.

GOP Still Doesn't Get It

Of course, congressional Republicans -- alonmg with many supply-side economists -- disagree that demand is the problem. Cut government spending, cut taxes even more (particularly on upper-income adults with incomes over $200,000 per year), and the U.S. GDP growth will accelerate, they argue. The key is investment and letting the free market work its magic.

There's just one flaw in the supply-side theory: The problem isn't 'supply' or a lack of 'investment' -- corporations are sitting on about $2 trillion in cash -- two trillion smackeroos -- and there are plenty of investment funds with capital. The problem is there's too little demand -- not enough demand from consumers. Businesses don't have enough customers.

Given the above, the key to stronger economic growth -- including the growth that creates jobs -- is increasing demand, and that will require an increase in government spending, not a decrease. Again, long-term, the nation's goal should be a balanced budget, but short-term, it makes little GDP sense to reduce demand in a weak economy.

Need another example of the impact of fiscal stimulus on commercial activity? Austerity measures have been implemented in Greece, Spain, Portugal and Ireland. How are their economies faring?

On the other hand, China, when it became clear the financial crisis and U.S.-Europe recession would slow commercial activity, deployed fiscal stimulus. How's China's economy faring these days?

Don't Repeat 'The Mistake Of 1937'

Still another example: Go back and research 'the mistake of 1937.' Today's congressional Republicans are proposing almost exactly the same policy that congressional Republicans did during President Franklin D. Roosevelt's effort to continue New Deal stimulus to pull the U.S. economy out of the Great Depression.

Under pressure from congressional Republicans, FDR gave in to conservatives and cut government spending in 1937.

And do you know what happened? You guessed it: The U.S. economy, which had registered impressive GDP growth in the first four years of the New Deal with unemployment dropping from 20.6 to 9.1 percent, retrenched, GDP growth slowed and the unemployment rate rose to 12.5 percent in 1938. Cutting government spending prematurely hurt the U.S. economy in 1937, and it will hurt the economy in 2012 and 2013, if House and Senate Republicans have their way.

Thankfully, for the U.S. economy and for Americans seeking work , FDR saw his mistake, reversed his policy in 1938, returned to Keynesian economics and increased spending, and the U.S. economy resumed recovering from the Great Depression, with the unemployment rate dropping to about 8.0 percent prior to the outbreak of World War II.

Massive U.S. government spending for mobilization during World War II would then lower the unemployment to a minuscule 1.2 percent in 1944!

At Issue: How to Create Jobs?

In short, one thing U.S policy makers should not do in 2012 is cut spending in a big way, short-term. That almost certainly will slow U.S. economy even more, if not tip the economy back in to a recession.

But that's what not to do. What can the nation do to create jobs?

Well, taking another page out of economist John Maynard Keynes' playbook, the U.S. government can deploy a series of public works projects -- you guessed it -- to increase demand and create jobs.

Moreover, there's no shortage of work that needs to be done and literally millions of Americans available and willing to undertake the work.

Here are a few ideas:

1-Infrastructure Rebuilding - Highways, Roads, Bridges. The nation's infrastructure is in a state of disrepair. The U.S. will probably experience more highway and bridge collapses like the one that occurred in Minneapolis in 2007, which killed 13 people and injured 145. The nation must rebuild and expand its infrastructure to meet the commerce demands of the 21st century. Cost: $500 - 750 billion.

2-Increases In Funding To Secondary Schools, Community Colleges - Congress could establish a special federal education fund to both decrease class size and increase the capacity of community colleges - the latter of which could serve as a critical retraining resource for the tens of millions of Americans who will need to be retrained to obtain skills in the technology-based 21st century U.S. economy. Cost: $200-250 billion.

3-Smart Grid/Electric Grid/Internet - Speaking of technology, deploy federal funds to build a smart grid, and the nation will become more energy-efficient. Further, the electric grid needs to be expanded as well, given the fact that a simple heat wave in the summer tends to strain the grid. And expanding broadband access to universal status can only make the economy more efficient and increase job opportunities to those who present lack it. Cost: $150-$250 billion.

4-Airports/Rails/Public Transportation - Anyone who's flown in the U.S recently knows that most of our airports are at or near capacity and/or are antiquated. Simply, the U.S. needs to build more airports and expand/modernize others. The same for the nation's rail system. Further increased funding for right rail and for natural gas/alternative fuel buses will reduce the nation's oil bill and highway congestion. Cost: $200-350 billion.

5-Next-Generation Car. The United States could expand its public-private partnership to speed the introduction of that game-changing, next-generation car, be it electric-, fuel cell- or natural gas-based. The federal government could concentrate on the costly basic research that companies can't afford, and the auto makers could concentrate on design and features. Cost: $50-80 billion.

To be sure, the above investments are not cheap. They'd cost $1.1 trillion to $1.68 trillion, but even if only one or two are deployed, that would still increase both U.S. GDP growth and job growth.

Again, it's great when the primary engine of job growth, corporations -- both large and small -- are deploying capital and creating jobs. But they have not done so en masse during the current recovery: They've basically sat on $2 trillion in cash.

Further, the answer is not tax cuts on businesses to increase capital. Corporations and the U.S. financial system are awash with capital.

The problem is not capital or product supply; it's demand. Hence, policy makers need to take action -- utilizing both public and private institutions -- to increase demand, and get this economy moving again, to create the millions of jobs the American people seek.