Even a healthy economy is subject to the bubbles and busts of the business cycle. When the economy contracts into a recession, the government must create solutions to unemployment. It may use expansive monetary and fiscal policies to stimulate job growth. Here are the eight job creation strategies that give the most bang for the buck. The Fed can also increase the money supply through quantitative easing, which is when it creates credit out of thin air to buy U.S. Treasurys, mortgage-backed securities, and any other kinds of debt. They can quickly put trillions of dollars into the economy by making credit available without increasing the U.S. debt. They also have many other tools, such as lowering the federal reserve requirement and lowering the rate on the discount window—which should be done first when a recession is looming because decisions can be made quickly through the regular Federal Open Market Committee meeting. The main disadvantage of this is that it relies on bank lending and doesn’t directly put money into consumers’ pockets. It can take six months or more to stimulate demand. It also doesn’t work once a severe recession is underway because there won’t be much demand for loans. If people feel too poor to borrow, it doesn’t matter how low interest rates are. If the recession continues, banks become unwilling to lend because borrowers’ credit scores fall. Another downside is that expansive monetary policy can trigger inflation if overdone. To prevent that from happening, the central bank must begin raising rates as soon as the recession is over. These benefits also help keep the unemployed from becoming homeless. It is more difficult for them to find a job if they lose a steady address. The best was a payroll tax cut given only for new hires. With it, every $1 billion created 18,000 new jobs. According to theories by supply-side economics, trickle-down economics, and the Laffer Curve, tax cuts on businesses and the wealthy drive the economy towards growth. With less taxes and more wealth to dispose of, companies and those in the upper-income bracket can spend much more and bring about activities that generate demand for new jobs. This is why so many people favor payroll tax cuts as the best form of tax cuts. It made sense back then because World War II was much more labor-intensive than today’s defense spending. Now, more is spent on drones, F-16s, and aircraft carriers than the salaries of military personnel. Also, there were no unemployment benefits during the Great Depression, so the job creation ability of government spending now may not be able to offset the true cost of war. One disadvantage of fiscal policy is that legislators disagree on whether tax cuts or increased spending is more cost-effective, which can delay action. Congress should cut spending or raise taxes once the recession is over. In fact, jobs created after the last few recessions have led to greater income inequality because rehired workers became willing to take jobs that paid less. The high level of long-term unemployed and underemployed individuals in this recession means that this trend will only continue. For month-by-month job creation statistics since 2008, see Employment Statistics.
