Obama's Jobs Bill: A Reasonable Plan

Photo: aflcio

Here are some quick thoughts on President Obama’s jobs plan:

– It’s reasonably big, at about 3% of GDP.

– It’s reasonably front-loaded. Goldman Sachs says it will raise 2012 GDP by about 1.5%–before any multiplier effects. Moody’s chief economist Mark Zandi thinks the effect on 2012 GDP will be about 2%. Expect more estimates in the 1-3% range for 2012; smaller for 2013.

– It’s reasonably well targeted. Unemployment insurance extensions will get spent. Infrastructure money gets spent and also builds stuff. As for the payroll tax: Who knows if it gets spent, but the point is to stimulate hiring, rather than spending.

– It’s reasonably well designed. The biggest problem with a payroll tax is that firms get it even for employees already on the books. But this time, the biggest payroll tax cut is only for firms raising their payrolls. This will yield a much bigger bang-for-each-buck. Early analyses have yet to realize how important this is.

– It’s reasonably timely. The usual argument against fiscal policy is that the spending only occurs by the time the economy is booming again. There’s no chance of that occurring. Perhaps this provides the confidence boost we need to counter double-dip concerns.

– It’s reasonably well focused. Tax credits for hiring the long-term unemployed will be very helpful in preventing the current recession doing long-term harm.

– It’s reasonably clever, removing the incentive to fire people, rather than reduce hours. (aka “Job sharing”)

– It’s reasonably evidence-based. Having the unemployed talk to a jobs counselor before extending benefits can have huge effects at minimal cost.

All told, it’s a very real plan and very specific. None of this is magic: Government gets more active when the market fails, and we pay it back when the market booms. This is all standard economics. There’s no gold-buggery, voodoo austerity or laughable Laffer-y. Obama’s not making up economics, he’s using simple tools to solve the obvious problems. And with long-term real interest rates close to zero, there’s no risk of this crowding out private investment

But let’s not expect miracles. Without the plan, GDP growth was expected to be so anemic that unemployment was expected to rise through 2012–partly due to the drag of reduced government spending in coming years. Obama’s plan eliminates this fiscal drag, but the economy has still gotta get its mojo back. So perhaps the long malaise turns in to the tepid recovery. But perhaps the Fed can help, too.

The biggest risk is that this plan provides another opportunity for Congress to prove itself incapable of addressing real macroeconomic concerns. If it does, watch for confidence to plummet just as it did following the debt-ceiling madness.

As for the politics: Ask a political scientist. But I wouldn’t want to have to explain a vote against this to my constituents, who are mad as hell about unemployment.


Bradley C.

Standard economics? ONLY if you believe the failed policies of the last decade and more appropriately the last 3 years are working. Seriously, this is just rehashed big government intervention. ANY money that "they" use to "inject" into the system is first taken out of the system someplace else. It is truly a zero sum game. There is no magic multiplier affect that all the Keynesian's purport. If there was we'd have been multiplied into GDP heaven by know after spending a trillion to stimulate the economy 2 years ago!

When did we start trusting Moody's and Goldman Sachs again? Didn't Moody's just downgrade the US debt while not warning a soul (by downgrading them) of the toxic mortgage backed securities of last decade? And Goldman Sachs? Quoting them as a source of supposed knowledge of the presidents plan on GDP is laughable.

Focus is one thing that is exactly wrong with this plan. Here we go again with the big omnipotent brother hand picking the winners and losers in economics...pandering to big labor and the shaking the hands of small business while stabbing them in the back with threats of increased taxes. PLEASE.

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Jeff

S&P downgraded the US. Moody's did not.

But it's okay, you can have an opinion without being informed.

Bradley C.

My mistake, I stand corrected. Maybe the bigger question is why didn't Moody's downgrade the US then? I guess in the scope of the larger world markets T-bills don't look horrible but if they were judged similar to a businesses books, ouch.

keith

To Bradley's point - the money has to come from somewhere. And it's coming from money in the next ten years, using policies that can be overturned by the next president, or the president after.

It's a "good idea" but all it's doing is saying "…by spreading the cost down the road, where we may or may not have the money."

To my understanding - it's also about repealing the tax cuts (or, in the GOPs eyes, increasing taxes) to generate some income, which people freak out about because they say that will "hinder job growth, if the rich can't keep getting richer, what incentive do they have to increase employment?" Which, to me, is a fallacy, since despite having all this wealth, they still prefer to cut jobs to keep profits high instead of cutting profits to keep unemployment down. After all, we all know the point of the game is to make as much money as possible, at the expense of everyone else in the end, right?

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Deron

It's interesting to me that there seems that we've been ignoring a political debate in this country on where jobs truly come from.

Part of the populace believe they're handed down by the rich as a reward for policies that insure that wealth. Jobs trickle down, I guess?

The other part believe that jobs come from the demands of middle class purchasers who want goods and services. A middle class with spare change will keep the economy moving.

The first group seem to be winning the debate. The second group might have a case, but nobody seems interested in making it.

I'm inclined to believe that the rich will be rich and will get rich regardless. The other side of the coin to, "the poor you will always have with you." Will we always have a middle class?

Bradley C.

The rich don't get to that point by some magic wave of a wand. They do so by employing people, if not directly, indirectly through investments and spending. In order to get where they are they need the middle class as much as the middle class needs them for, well, jobs. For if there was only the rich and poor who would buy what the rich were selling to get...rich? Only through direct theft could they maintain their status and that is after all one of the true duty's of government, to prevent theft.

John

Come on, Justin. You're dreaming. Where's your proof that those who receive tax cuts will spend it?

Given the lack of uncertainty wouldn't it be more likely that they save it rather than spend it? If they are saving it how are these tax cuts going to grow the economy?

Not to mention how this is going to be administered? How is the government going to keep track of all those businesses who are hiring long-term employees? You don't think there is going to be a massive amount of fraud coming from this?

How about this for a plan:

I, President Obama, do solemnly and sincerely, promise and declare that my administration will get out of the way. Without any equivocation or mental reservation we will no longer get involved in the economy.

My administration will let the economy work itself out because our efforts have only hampered any improvement and in the end made things worse. My administration will no longer subsidize or bail out failing businesses or any industry that cannot turn a profit on its own. We will let markets find their natural bottom in order to clean themselves out.

To all of this I swear without any equivocation or mental reservation, but with a firm resolution to keep to this promise until the time I am up for re-election.

Should I be re-elected I will continue down this path and focus on the things the government should focus upon: the common defense, the protection of contract law and the protection of individual rights.

That's a plan to me.

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Bradley C.

But without them (him) telling us where to spend our money how will we ever get along?

Obviously I'm being sarcastic...John's plan x10

Alex

Still looking for empirical evidence that this can work. Shouldn't we never have been in this depression to begin with under the Kenyesian logic? I mean we had massive deficit spending already.

Joshua Northey

Deficit spending doesn't magically erase the massive mal-investment we did from 2000-2007. We blew a ton of money on things providing no value.

2 wars, homeland security, more housing then people could afford, et cetera

It is smart for the government to save money in good times, and spend it countercyclicly in bad times. Unfortunately our infantile political system is incapable of saving any money.

So instead we just get the past 10 years of "spend and don't tax".

Alex

Doesn't Paul Krugman, the Godfather of Modern Kenyesianism, advocate a worthless war with imaginary space aliens?

This alone seems to contradict the idea that the money spent on wars was "wasted".

Seriously, is spending only good when some random economist says it is good? Why weren't those wars stimulating us?

Joshua Northey

I know this is going to sound like rocket science voodoo economics...but here goes.

Spending is GOOD when it is for things that are useful. It is called investment.

If the US had say built some functional mass transit in largish cities, or expanded our power transmission infrastructure, or educated former autoworkers and real estate agents with skills that are needed in todays economy, et cetera, then the spending would have been wise.

When it is used to "fight space aliens", or blow up little brown people, or topple some random dictator, or build houses out in the dessert that no one wants then it is not well spent, it evaporates.

The market is very powerful, but it has problems and shortcomings. Governments responsibility it is paper over those shortcomings. It is a lot wiser to try to paper these over with planning and effective investment, then it is by simply wasting money and hoping it all shakes out in the end.

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Melissa

You might notice that investors in the bond market have all bonds available to them to consider. The fact that corporate bonds (those judged based on those "business books" you think are so sound) have to pay a higher interest rate than the T-bills suggest that people who put their money where their mouths are do in fact judge that it's the businesses that are "ouch" investments compared with investing in the US govt.

William

Could you please define "reasonably". No offense, but I would rather not just take your word for it. Also, have you ever investigated the data after tax cuts in terms of tax revenue? Look at Kennedy, Reagen, and others, and then make fun of Laffer. You come off in this like an MSNBC pundit-no facts, no data, just opinions (incorrect in my opinion).

Joshua Northey

Infrastructure Spending good. The US could use some upgraded infrastructure (as opposed to say, more housing).

Unemployment extensions bad. This will just exacerbate unemployment. Unemployment insurance beyond a few weeks just facilitates further unemployment. Is it even unemployment insurance at this point or is it just the rebirth of welfare? The best way to get people employed is to let them start starving. They wage demands become less sticky.

Bradley C.

I'm still leery of infrastructure spending for the sake of spending. What has/is being done with the billions of federal gas tax money we're already sending to Washington? I don't think there needs to be some great plan to all of a sudden spend even more on infrastructure. How about we refocus the dollars already there into projects that are (actually) needed that will spur job growth.

Also, why infrastructure? Yes, some of it needs work and our federal gas tax money should take care of that but we shouldn't (IMO of course) get too excited about creating a infrastructure construction employment bubble only to have it burst when this new pile of cash runs dry. It just moves the inevitable pain of finding a different job in something more stable, or worse yet attracting new workers to the bubble, and moving it on down the line for someone else to deal with later.