Job Creation: Reforms Will Hinge on Whether Banks Deploy Adequate Funding
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The United States is trudging through the tailing winds of an economic storm that saw trillions of dollars in wealth wiped away, major financial institutions demolished, and an investment-based nationalization of the nation’s largest banks, and the mystery, according to most observers, is: where are the jobs? One after another source will say job recovery trails recovery in national economic growth by six to eighteen months.
But the question remains: what can the administration of Barack Obama do to motivate a speedier job recovery. The American Recovery and Reinvestment Act (ARRA) is not, in technical terms, a “stimulus package”, but rather a multi-phase long-term reform and recovery plan. It was designed to direct investment not to any source that might stimulate immediate consumer spending —this had been tried a year earlier by Pres. Bush’s administration and failed utterly to stop the slide— but rather to projects that would help generate an innovation economy that lays the groundwork for a more competitive energy-production and employment economy for 21st-century America.
More than half the funds to be disbursed through the ARRA plan have yet to be disbursed. They will continue to direct large amounts of new investment to viable and necessary projects designed to innovate technologically and build long-term new employment opportunities into the fabric of the US economy. But the press are joining the Republican opposition in demanding better results sooner from Obama’s recovery plan sooner rather than later.
Putting political preferences aside, Obama is faced with the irreconcilable and polarized critique that he has either ignored Main St. in favor of Wall St. or has pressured banks and businesses too much in favor of “redistribution”. Both are likely to prove unfair in the long-term, but what every observer seems to be ignoring is the role banks themselves are playing in the “jobless recovery”.
The unwillingness or inability of banks to extend needed credit to both individuals and businesses (small and large) is preventing the job creation that the American people, and the ARRA, aim to see materialize. Recessions alter banks’ forecasts for their own revenue streams, which alters the calculus of their willingness to lend, so they tend to behave cautiously even after the economy begins to grow.
But the near collapse of the banking system, in the case of this recession, raises important questions we have not fully explored:
1. Were the losses facing banks far more grave than revealed to date, thereby leaving banks unable to resume lending?
2. Had banks’ lending models evolved to benefit banks less from the results of successful lending than from risky derivatives, thereby leaving banks with no way to cover their built-in revenue expectations?
3. Can existing banking structures be saved by responsible recovery legislation? or will a major market-wide structural correction take place before job-creation resumes?
These are key questions that face the broader economy, but major banking institutions have not been forced to deal with their role in these socio-economic and commercial dynamics. Before real, full-scale job-creation resumes, in concert with a sustained and sustainable economic recovery, the banks will have to deal effectively with the problem of their responsibility for stimulating grassroots economic activity.
Failure to find the will and the way to do so will continue to pressure banks and lead to sporadic or even compounded failures in businesses and banks. What measures can be taken to ensure that a dynamic lending market takes us from where we are to a healthy, sustainable economic output?
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