Historians will write the story of the financial crisis that created the economic meltdown of one year ago. </p><p>Politicians will blame avaricious, irresponsible and underregulated financial institutions that gambled with federally insured deposits and mortgages. Financial institutions will blame politicians who enacted laws requiring them to lend money to unqualified borrowers. </p><p>TARP was the government solution to the crisis. Ideologues of both political parties criticize TARP, arguing that the institutions should have either been nationalized or allowed to fail. Pragmatists are more sanguine, arguing that by bolstering balance sheets with equity investments the government stabilized the institutions and that by lowering interest rates the government allowed the institutions to earn their way out of their dilemma and repay the taxpayers, which has already commenced.</p><p>We have moved on to stimulus packages. The negative impact of the almost trillion dollars of unfunded spending is clear. The federal deficit is skyrocketing. The dollar is crashing. What happens when China stops buying our Treasury bonds?</p><p>On the positive side, the billions of dollars of stimulus to be spent on &ldquo;shovel-ready&rdquo; infrastructure projects will yield better roads and bridges. Part of these expenditures will be recovered via payroll and income taxes on wages and profits, some of which will go to the states. However, regarding the bulk of the stimulus, the best that taxpayers can hope for is that the money spilled will eventually seep down and fertilize the roots of the broader economy.</p><p>The legislation that has proved to be effective fiscal policy is financial incentives. People respond to a good deal. You would think that politicians would understand human nature. However, Congress and the administration were both caught off guard by the overwhelming response of consumers to the Cash for Clunkers automobile program and the tax credit for first-time homebuyers.</p><p>Even though the stimulus funds are now flowing, the unemployment rate is still rising. Incredibly, there was no incentive in the stimulus package for any business to hire or retain a single employee. With classic legerdemain, politicians now claim that millions of jobs were &ldquo;saved&rdquo; by the spending package.</p><p>During a recession, when there is no &ldquo;top line&rdquo; revenue growth, expenses must be cut to maintain profit margins. Pretend for a moment that you are the CEO of a company. You have already cut all unnecessary expenses. Where do you cut next? Fixed expenses are just that. You can&rsquo;t cut materials without hurting the quality of your product. You can&rsquo;t cut marketing without losing market share. So you cut labor.</p><p>Employees are very expensive. As the automobile manufacturers learned, wages and salaries are just the tip of the iceberg. Some additional costs include payroll taxes, pension benefits and retirement plans, training programs, paid holidays, vacations and sick days, employee litigation, collective bargaining, leased space, human resource departments and premiums for health, life, disability and liability insurance. This excludes the cost of health care reform legislation, which is currently unknown.</p><p>The trend to reduce labor costs is evident each week as the job loss numbers are announced. The process is being accelerated by mergers and consolidations as weak companies are devoured by stronger competitors, which results in more lost jobs. Service and manufacturing jobs are still being outsourced. Even successful companies are paying overtime rather than hiring additional workers.</p><p>Now Congress is considering a second stimulus package, which, unlike the first one, would include tax credits, accelerated deductions and other financial incentives for businesses to hire workers, buy equipment and invest in new technologies. Unfortunately, many politicians disparage such fiscal policy as corporate welfare.</p><p>A decade or so ago, I was meeting with my partners, a group of liberal politicians, one of whom now serves in Congress. We were developing a major public-private partnership project. One day they were grousing about the editorial page of The Wall Street Journal. Trying to lighten the mood, I suggested that the conundrum of liberals is that while they love jobs, they hate employers. </p><p>No one laughed.