America’s Last Stimulus: 5 Ways to Use Europe’s Crisis to Create US Jobs

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This is an abridged version of the original article I wrote for Business Insider. 

In a forgotten corner of the White House sits a huge, Parthenon-shaped cake. Nearby, Ben Bernanke and Timothy Geithner are dancing like Zorba and dripping with hummus. Why all the glee?  It’s because Europe just gave the U.S. an amazing gift – the gift of greater incompetence.  I call this glitch in time ‘America’s Last Stimulus’. It may be our last chance to stimulate growth, kick-start our export engine, and make sure every European gets a big, wet kiss at the airport.

The Challenge

As Americans flipped McMansions and gave hernias to Best Buy delivery guys, Europeans luxuriated in government services.  While Germans engineered perfect engines, Greeks retired at 50 and lived on borrowed pitas.  Now, the grim reaper of mathematics has come for them.  Ireland, Italy and Spain are next.  As Europe gives mouth-to-mouth to the Euro, the rest of the world laments its old girlfriend, the US dollar.  Once again, our greenback and no-interest bonds look like something you can bring home to mama.  Deep down, we know the truth. If we don’t fix our debt, entitlements, and flaccid exports – we’re more Lindsay Lohan than Marie Osmond.  It doesn’t have to TMZ that way.

We have a lot going for us. A handful of politicians, like Mayor Bloomberg know what America must do to de-Lohanize. Demand in emerging markets is booming! If only we could produce some of what they’ll need as they enter the developed world – scented candles, eight blade razors, and those carts for fat people at the airport. Plus, we’ve got piles of private cash and smart, creative people who could make us competitive.

Why can’t Silicon Valley save us? Too much of our best talent and venture capital is chasing the Angry Bird – looking for quick bucks in digital services that don’t export or create many jobs.  Facebook might be valued at $100B, but it only has about 3,000 employees. Instagram was bought for $1B and had about 10 employees. When it comes to the economy, the digital “trickle-down” is more drip than tsunami.  That’s why the US desperately needs innovations that:

          1. compete overseas
          2. replace imports
          3. attract foreign money, or
          4. get rich people (and rich companies) to part with cash they would have blown on gold bullion, lobbying or liposuction.

5 Ways Government Can “Create Jobs” Now

No matter what you’ve heard, government can’t “create jobs”, make kittens, or bring back the 1950’s. What it can do is create conditions that enable growth and innovation.  Thanks to our good friends in Europe (I’m hugging a Spaniard as I type this), the US has a short window to act.  America might be going to bed with Marilyn Manson, but with a few good decisions, we could wake up with Marilyn Monroe (the one from the 50’s, not today).

So what should the US government do?

1.    Attract Foreign Companies

With over $1 trillion in 2012 deficit spending, not a dime is going towards one guaranteed economic booster: luring foreign companies here.  It’s a bit more complicated than leaving a long trail of seductive factory worker photos from Taiwan to Akron, but other countries regularly do it to us. Our own states do it to each other. There are no winners in this race to the bottom, unless we consolidate our efforts to lure foreign producers here. US tariffs have already attracted a handful of Chinese producers. Incentives can help. Any company that already sells to US customers, has complex products, and enjoys growing global demand would be fair game. We can build on our existing base in aerospace, military, agriculture, food prep, medical devices, and energy. By offering land, tax abatements, and cameos on 30 Rock, we could create well over a million direct and related jobs.  There are already 700,000 workers employed by Japanese manufacturers here. Why not Indians or Germans? I’m making my first batch of schnitzel masala now.

2.    Domestication

All else being equal, I think most Americans would rather buy something made here than by tiny little hands elsewhere.  A weak currency alone won’t do it.  So what would tip the scales?  Here are three ideas:

  • Charge a lower sales tax on domestically produced goods.  Note this is not a tariff on imports, just a well-earned domestic discount. It can be deployed using point-of-sale systems just like many states have done with tax-free holidays.
  • Label the percent of each product’s wholesale cost that came from the US. If we can force fast food nutrition labels on our Biggest Losers, why not know where our Snuggies are made?  I think many would eventually demand it…as they sift through piles of lead-encrusted toys.
  • Link corporate taxes to annual, domestic job creation. For example, if you increase your number of domestic employees by X%, save Y% on payroll, property, or income taxes. These numbers can easily be reported and checked through payroll processors.

3.    Equal Footing (Capital Parity) for Manufacturing and Exports

There’s no such thing as a country of 300 million “idea people”.  Big job numbers come from building, shipping and servicing those toys we can’t stop fondling. Most people would let a dingo eat their baby before letting it drool on their iPad. So far, China, Korea and Japan have accepted our inflated dollars for these goods. Europe has given us one last chance to prepare for when that’s no longer the case.

One way government can help is by placing capital-intensive, export-friendly, growth businesses on equal financial footing with Angry Birds.  Instead of getting directly involved, as it did with Solyndra, the government should provide matching funds to these underfunded sectors. This leaves investment decisions to professional investors, who must keep skin (and Rolex) in the game. In some cases, the match might be one-to-one. In others, it might be more. If these companies succeed, Americans collect the same benefits as other shareholders.  Of course, we’d have to sell these shares at the next reasonable liquidity event.

There’s an even more democratic way to dispense matching funds – let the people decide.  No, not like the Salem witch trials. People already vote with their dollars by financing projects on sites like Kickstarter. With the passage of the new crowd-funding bill, the ever-wise crowd can also select the businesses they think could generate quality jobs and exports. Government could easily infuse those companies with matching funds – directly inside each crowdsourcing network.

4.    Small Business Liberation

About 62% of jobs were created by small businesses over the last 18 years. (I’m guessing the rest were created by reality TV.) With the JOBS Act, the Obama administration just made it much easier to start, finance, and grow a small business.  Whether you’re into elephants, donkeys or some other sexy beast, this is good policy.  Even though more startups will get funded, we still need to unchain the entrepreneurs themselves. Here’s how:

  • Not only do health care costs keep rising by as much as 30 percent a year, but they might be the single greatest threat to entrepreneurs. The government can offer 12-18 months of subsidized health insurance to people starting their own businesses.  This can be managed as a subset of Medicare, but would act more like an investment than an entitlement. I’d shower any high-potential businesses with free pap smears, prostate exams, and Robitussin.  This could liberate many nascent job creators who are afraid to abandon their (no doubt) awesome cubicles and leave their families uninsured.
  • Like health insurance, student loan payments can keep people from starting a business.  Suspending or slowing outstanding student loan payments for the same 12-18 months can take some of the sting away.
  • Create a simple, one-stop shopping for all state and federal small business programs and regulations (like registering a corporation, tax questions, employment rules, taxation, etc). The experience to small business owners should be as simple as ordering a burrito at Chipotle. Car dealers and insurers, for example, are regulated differently in all 50 states.  It stops growth, competition and prevents awesome commercials  artificial obstacles for new competitors.

5.    College Loan ‘Rank and Yank’

A truly effective government could make sure we have educated, employable citizens who have no idea what a “Snookie” is. Instead, the US education system is like a dingy cash checking place. Geniuses and crack-heads alike, trade government checks for moldy scraps of knowledge.

Student loans have enriched crummy schools and created a generation of 20-something debtors. The whole system needs an exorcism. Until then, there’s one short-term fix that can make this welfare state more palatable and create more employable graduates: withdrawing government grants and loans from universities ranked in the bottom 10% in quality, post-graduation employment

Like GE, Sun and others force out low-performing employees, the government should force out bad schools using 3-year job placement averages. The beauty of this is the government only has to 1) survey graduates and 2) not give cash. It never has to dictate any changes. The market (or lust for borrowed cash) will force schools to compete. After two years, schools can re-enter the system – if they surpass other funded schools.

Of course, no one should keep the rich (or deranged) from using their own money to study the history of transgendered bowling, but taxpayers shouldn’t fund the next welfare generation – no matter how well they can bowl a strike in 7-inch stilettos.

Conclusion

These ideas, like most government interventions, will create new distortions to make up for old ones. That’s why every new policy should be treated as temporary. Say, 5-7 year terms with shorter renewal options. We can’t afford more indestructible zombies like oil and farm subsidies.

Finally, the world where Chinese kids work 12 hour shifts so Little Brandon can cast spells all weekend  - won’t last forever.  Neither will Europe’s troubles. Eventually, attention will turn to our underendowed economy. The least we can do is pull our pants up! I hope these ideas can help inch those trousers up a bit…and more importantly, stir constructive debate on what else we can do. Look for more of my Econovation ideas at ideafaktory.com.

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