Last of a three-part series

GDP rose 5.7% unadjusted in the fourth quarter of 2009, the second straight quarter of growth, the Commerce Department said today. But the economy shrunk by 2.4% for the year, the biggest drop since the 10.9% contraction in 1946, as more than seven million people are out of work--more than 15 million counting those who have given up.

President Barack Obama is talking about spending more money on a big jobs push, as the Democratic-controlled Senate approved raising the government borrowing limit by $1.9 trillion.

The debt ceiling was just raised last November beyond $12 trillion—government spending is now about the size of the U.S. economy. The U.S. collects $2.4 trillion annually in total tax receipts. Which is why the massive borrowing. Foreign central banks in China, Japan, the UK and Saudi Arabia now own more of the U.S. debt than ever before.

Meanwhile unemployment continues to stay stickily, stubbornly high, at around 10%, with weekly jobless insurance claims stuck around 478,000. Economists say hitting 440,000 on the four-week moving average is typically when you'll see a solid economic turnaround.   

There's a better way to create jobs

For ideas, see below.

But you're not seeing serious talk now, as negative poll numbers show the White House faces a serious credibility problem, as the President continues to give speeches about the “assault” on the middle class and the “epidemic” of job losses.

You don't hear much uplifting appeal here to the enterprising spirit of optimism, of entrepreneurship, that is the fire-tested heart and soul of the American people.

Instead, the government is increasingly getting in the way of businesses big and small, and they're hoarding capital instead of hiring because they're scared.

 On a Molecular Level, a Disapproving Fingerwagger

A growing portion of the country's populace senses that the President is too downbeat and disapproving on a molecular level, that he is at heart a finger-wagging senior lecturer who gave lessons on constitutional law at the University of Chicago Law school, but one who really doesn't have a grip on the subject as he admonishes the Supreme Court for saying that foreign governments can now influence U.S. elections via campaign finance (they can't and never could).

Whose health reform is touted as miraculous despite the fact everyone wants to be exempt from it.

Who touts health reform as ‘shared responsibility' when he cuts backroom exemptions for unions and 17 states.

Who is raising taxes when his list of government nominees has the highest number of tax evaders on it.

And whose jobs program is merely reheated Jimmy Carter.

Not Really JFK

A president who virtually mimics John F. Kennedy in his war on the steel companies in the ‘60s, when he says about his crackdown on the banks that “if these folks want a fight, it's a fight I'm ready to have.” A crackdown that includes avoidable fees and a halt in proprietary trading that Wall Street is already working to get around.

The difference here is that when JFK was criticized for favoring the rich when he endorsed tax cuts that helped businesses create jobs, JFK replied that the best form of welfare is a high paying job.

Back to the future time, it's 1979

President Obama's State of the Union address talked at length about how his Administration has created jobs and how it had rescued the economy from the deepest crisis since the ‘30s, echoing Carter's State of the Union Address in '79, “…in bringing our economy out of the deepest recession since the 1930's, we've created 7,100,000 new jobs.”

This week, Treasury Secretary Tim Geithner testily faltered before Congress when he said he helped save the economy in the much criticized AIG bailout, a defense few in Congress believed and many attacked, due to Geithner's decision to give Goldman Sachs, Merrill Lynch, UBS and Societe Generale 100% of their AIG money back when UBS had already agreed to haircuts.

Carter's Treasury Secretary, G. William Miller, similarly touted his role in the criticized Chrysler bailout '79 and was blasted for saying that rescuing car executives saved the economy.

Mr. Toad's Wild Ride

And the Federal Reserve is on the defense too, talking about how its policies will grow the economy—the key difference here is that former Fed chair Paul Volcker moved to jack up rates after Carter left office, a rate hike many herald as a prudent move, while Bernanke and the rest of the government races in the opposite direction on their Mr. Toad's Wild Ride of Fiscal and Monetary Promiscuity.

And that is so crucial for the markets, for investors, for borrowers, for taxpayers, for all of us. Bernanke has already quietly warned Congress that if foreign governments lose faith in the US's ability to rein in spending and be more fiscally prudent, then the US will lose control of its interest rates, and there's nothing it can do to win that confidence back.

That means rates go up and borrowing costs go up for all of us.

Tiny Spending Freeze

First off, the spending freeze is absurd--$25 billion a year is spitting in the wind of a $1.4 trillion budget deficit aggravated by this Administration. Obama's touted spending freeze applies to only 17% of the budget, and it cements in place higher spending on programs that have already had at least a 22% increase in their annual appropriations in the past two years--another 25% increase including stimulus, analysts note.

There's too much uncertainty in businesses as to how all this spending will aggravate borrowing rates and create future tax hikes.

Both a spending cut and preserving the Bush tax cuts will revive the job markets.

Here's the magic formula: Get federal spending back down to 20% as a percentage of GDP. “That's where it was under Reagan, Bush I and Clinton. The 20% figure has proven to be optimal,” notes Forbes Magazine publisher Rich Karlgaard.

“If Obama states 20% as a simple goal -- he won't, alas -- he would instantly remove the uncertainty that retards this recovery,” Karlgaard says.

What else can be done?

Keep the Bush Tax Cuts:Otherwise small businesses that fall in those upper brackets will get hurt, and they won't create jobs. A tax hike during a downturn is always damaging, economists note.

Pass meaningful health reform: For ideas here, see column “Fixing America: Health Reform.” Without careful reform, compa­nies will be forced to spend more on benefits and less on wages due to things like employer mandates for health insurance, as well as other anti-growth measures, notes the Heritage Foundation. Employers must be able to operate flexibly in hiring, bargaining, and in wage and benefit packages in order to take prudent financial risks and expand production, Heritage says.

Revive the economy with more H-1B visas: Many high-tech employers are alarmed by the allotment of a meager 65,000 H-1B visas each year for foreign workers in specialty occupa­tions, with an additional 20,000 for individuals with a master's degree or higher. The ability of employers to hire skilled individuals from other countries allows for a better-rounded workforce that boosts America's competitiveness, Heritage says.

The hiring of highly skilled foreign workers allows American companies to expand in America instead of relocat­ing abroad, Heritage adds. And research shows that companies that hire highly skilled H-1B workers also create more jobs for American workers, Heritage notes.

Raising the H-1B cap will increase American competitiveness and create more jobs in America. Instead, Congress should return the cap to the 2001 quota of 195,000 visas a year, create a more flexible program, make interoperable databases to minimize fraudulent cases, and increase oversight to make sure employers conform to program rules, Heritage advises.

Promote true free choice in the workplace: Don't pass the Employee Free Choice Act, which would replace secret ballot elections with publicly signed union cards, Heritage says. Doesn't it make sense that a worker would face increased pressure from union bosses if that worker doesn't have a secret vote? Do the Osmonds have teeth?

The bill would also end collective bargaining by legislating mandatory arbitration that would allow an outsider to decide all wages and working conditions for two years. Businesses could run fast as they can from this new bill, as it would lead to fewer investments and jobs and to unworkable contracts.

Allow merit-based pay/individual raises: Union employees are paid for “time served” instead of “hard work,” Heritage says. But the “seniority ceiling” prevents workers from maximizing their full potential due to a lack of incentive. The RAISE Act would lead to an increase in productivity allowing workers to make between $2,600 and $4,300 more a year in performance-pay bonuses and merit raises, Heritage reports.

Right now, federal law caps the wages of eight million American workers. The RAISE Act would let struggling American families get ahead without destroying the wage floor or creating anti-union discrimination.

Stop Wasting Taxpayer Money: The Davis–Bacon Act was cre­ated to ensure that the federal government did not underpay union construction workers in the government's various spending programs.

Never mind that many government-backed programs hurt the economy and taxpayers.

The Government Accountability Office has found that the Davis–Bacon wage calculations are badly flawed, use an unscientific methodology and data that lead to massive errors and taxpayer-backed overpayments, Heritage notes.

In some cit­ies, wage rates on federal construction projects are double the local market's wages while in others they are set to the minimum wage. Nationwide, Davis–Bacon pay rates average 22% above actual market wages, costing taxpay­ers at least $9 billion a year, Heritage says.

The Bureau of Labor Statistics specializes in estimating wage rates accurately. Congress should require the Department of Labor to calculate Davis–Bacon federal wage rates using scientifically valid data collected by the Bureau of Labor Statistics.

Enact the Freedom from Government Competition Act: This bill has been around in one form or another as far back as 1932, the ‘40s, then again in the ‘50s and had a rebirth during the Reagan years and again in 1998, notes Erin Kanoy of the Heritage Foundation. During this Congress it was introduced by John Thune in the Senate and John Duncan in the House as the Freedom from Government Competition Act of 2009 (S.1167 and H.R. 2682).

 The bill basically directs the agencies to identify jobs that are commercial in nature and create a competitive bidding process as opposed to a government job, Kanoy says, and can create “staggering numbers in savings.”

A 1998 version of this act found that out of 1.6 million workers in the executive branch, about 850,000 non-postal, full-time, permanent employees were identified as really “commercial” in nature, but they were getting paid more than the private sector. Less then 10% of these jobs were then subjected to the requirements of the 1998 act.

However, if it had been fully implemented within five years annual savings would amount to between $20 billion and $28 billion. John Palatiello and John Byrd at John M. Palatiello & Associates continue to crunch the numbers to find ways that the government can save taxpayer money here—which means taxes would go down and more jobs would be created.