Commentary: What Could be Done Tomorrow to Create Millions of Jobs

Presidential campaigns are all about big promises and laying out bold agendas and Hillary Clinton's plan to invest 275 billion dollars in infrastructure will certainly create some jobs in the short term and boost overall productivity in the long term.  However, even the Obama administration admitted a few years after the passing the Recovery Act that finding and overseeing worthwhile projects was challenging.  I applaud Secretary Clinton's desire to enhance the long term economic fundamentals of the United States.  However, big projects will take years to be implemented, and gains in productivity will trickle in over decades. 

At the same time, economic indicators point to an overall shortfall in aggregate demand.  Inflation continues to undershoot the Fed's two percent target.  Although core PCE inflation registered a 2.3 percent increased on an annualized basis in June, that number was largely driven by a record increase in rents in urban cities.  Indeed, in May rents rose at double the pace of other prices, helping to support the broader increase seen in the PCE price index. 

Second quarter GDP came in below expected at 1.2 percent annualized growth, while first quarter growth was revised down to 0.8 percent. While the trade deficit has narrowed a bit this year, adding to growth, it is likely to widen as weakness abroad suppresses demand for US exports.  This is likely to further reduce growth. Sadly, the United States, despite its slow growth, is one of the few bright spots in the global economy.  Europe and Japan are mired in stagnation. Indeed, when you're the prettiest horse at the glue factory, its foolish to expect foreign spending to solve your aggregate demand shortfall. 

To counteract the global slowdown, the United States should indefinitely suspend the collection of payroll taxes on the first 30 thousand dollars of income. Unlike direct government spending on infrastructure, this policy could be enacted immediately and would put close to 1500 dollars a year in the pockets of millions of American families.  To be clear, this proposal should not be 'paid for.'  With state and local governments retrenching, (and last quarter Federal government spending fell as well) the US government must step in to fill the demand shortfall by increasing the budget deficit.  

The economy needs a jolt.  Something easy to implement, non-controversial in Congress, and will have an immediate effect in shoring up aggregate demand.  A tax cut for working Americans who would very likely spend their larger paychecks would greatly support growth in the coming quarters.