Welcome to Oregon’s jobless recovery.  While technically growing, the unemployment rate remains stubbornly high.  Nationally, the economy is sluggish at best, and Oregon’s economy continues to perform poorly.  State economists don’t forecast a return to job growth until 2011.  My question is can the state afford to accept 2011 as answer?  Oregon is hurting.  At the state house, this is a leadership test that they are failing.

Oregon, we have policy options, but the clock is ticking on this special session.  First, we need to talk about the recession and why it is a jobless recovery.  Then, we can discuss the Main Street Incentive Plan (HB3620) which is in the best position to create job growth in 2010.  We need to understand these policy options so we can pressure our political leaders to act.  Before we get started, please keep in mind that Oregon’s economy has a lot of different problems.  While I believe the Main Street Incentive Plan is an important policy option, it is by no means the only economic reform we should be enacting.

Our Jobless Recovery

A recession isn’t caused by a single event nor is it a single moment in the economy.  The technical definition is two consecutive quarters of negative growth.  The recovery begins when the economy begins to grow again.  Sid Leiken, Mayor of Springfield, shared this description with me;  A recession is like falling down a ten foot hole.  We call it a recovery when you climb one foot out.  He was illustrating how things in the economy can be improving, but you’re still in a hole.

The causes of this recession explain a lot about this being a jobless recovery.  It started in the real estate market.  Since so much money was tied up in real estate backed bonds, financial institutions didn’t know how much their assets were worth in the current environment.  When financial institutions stopped lending, the recession began to get very painful.  This is a simplification of events, but the point is that business lost access to short term credit.  Businesses need access to short term funds to function.  Short term credit allows business to finance things like payroll, purchase inventory, and cover other expenses while accounts payable are still due.

During the recession, businesses changed to accept a new reality where access to short term credit was difficult.   To compensate, they asked their current employees to do more.  In a lot of cases, businesses made structural changes to their businesses to eliminate positions.  As economic growth begins, businesses are going to work their current employees longer hours prior to hiring new employees.  Hiring employees costs money, and businesses want to avoid that cost if they think the economic recovery is uncertain.

Assume that I have a business.  My one employee works 8 hours per day during the recession.  When the recover starts, I may get another hour of work to do.  Because I am unsure of the economic future, I will pay my one employee 9 hours per day before I hire another employee.  It simply doesn’t make sense at this point to hire more people.

To get businesses to hire again, we need to enact policies that increase growth in the economy. This may seem obvious, but we are in a sluggish, uncertain recovery. The economy is at a point where it doesn’t make sense for businesses to hire.  If we can increase activity in the economy, then jobs will follow.

Main Street Incentive Plan

The Main Street Incentive Plan (MSIP) or HB 3620 was proposed by the House Republicans during the 2009 session.  The plan was designed to promote job growth through investment in houses and businesses.  Under the plan, Oregonians would be eligible for a tax credit of 50% of the project or 100% if the project is a green project.  The credit would be between 10k-50k for homeowners and 25k-500k for business.   You would be able to take the 20% of the credit for five years.

In a jobless recovery, the Main Street Incentive Plan is the best policy option that the State Legislature has.  The MSIP is in a unique position to create jobs in the short term and create an environment for job growth in the future.  The advantages of the MSIP are as follows:

• Allows State to pass effective stimulus: Because the state has to pass a balanced budget, it cannot pass an effective stimulus. Government fiscal stimulus depends on the ability to deficit spend.  By using the incentive plan, the state can get around its inability to make fiscal policy.  Businesses using the Incentive Plan will spend the money in our current weak economy. But the cost to state will be paid over 5 years.
• Private investment protect Oregon’s future:  By providing incentives to private industry to invest, we encourage companies to begin infrastructure projects.  New infrastructure is cheaper to operate, which will help keep Oregon business strong.  Furthermore, new infrastructure will continue to pay returns to Oregon’s economy.
• Private industry gets to choose how the money is spent: Under normal fiscal stimulus, state politicians would choose how the money is spent.  State projects are funded based on political need, but not economic need. If we rely on private investment, we can avoid the political games, and focus on economic needs.

Conclusion

Oregonians need jobs now. The MSIP is aimed specifically at promoting job growth in the short term economy.  In the 2010 special session, it is the most effective jobs creation bill that is being considered.  Unfortunately, the bill is stuck in the democrat-controlled House Revenue Committee.  The MSIP was proposed by the minority party, but that doesn’t mean it should die in committee.  In a time when Oregonians are out of work, a bill, which has a large base of support like this one, deserves a floor vote.  It is a shame that the Revenue Committee continues to chose their own egos over the needs of working and unemployed Oregonians.