Time to start crunching the numbers on President Obama's proposal. Moody's Analytics Chief Economist Mark Zandi says the president's jobs package would likely create 1.9 payroll jobs and grow the economy by 2 percent. It would also cut the unemployment rate by one percentage point. The $447 billion plan would cut employers' payroll tax in half for their first $5 million in wages, while eliminating it completely for businesses adding new workers or raising wages. It also calls for infrastructure spending and an extension of unemployment insurance. House Speaker John Boehner said Obama's ideas "merit consideration.”
The Right Move
CEO and co-CIO of PIMCO
President Obama set out an appropriately ambitious program to address America's deepening unemployment crisis. It rightly targets structural impediments to economic growth that have been allowed to fester for too long in areas such as housing, infrastructure, credit, and the labor market. A definitive assessment of its overall design and political feasibility must await, however, the details of the fiscal component which President Obama intends to announce next week.
Obama’s Excellent Proposal
Economics Professor at University of California, Berkley; Former Council of Economic Advisers Chair
The President’s jobs proposal is bold, smart, and designed in a way that should garner bipartisan support. Its substantial size—close to $450 billion—is unfortunately what is needed to significantly increase employment and growth at a time when unemployment is still painfully high and the recovery is at risk of stalling. Some of the specific proposals, such as the business tax credits for hiring and the unemployment insurance reforms to help unemployed workers get a foot in the door and receive training, are innovative and make excellent use of economic incentives. Others, such as the $35 billion to help local school districts pay for teachers, the substantial infrastructure program, and the expanded tax cut for households, are measures with proven success. The proposed investments in infrastructure, training, schools, and teachers will not only create jobs today, they will make us a more productive economy in the future.
Importantly, the President made clear that he wants to undertake these proposals in a way that does not worsen the long-run budget problem. When he announces his overall fiscal plan in the next few weeks, I hope he will pair this excellent near-term jobs plan with an equally concrete and bold plan to not only pay for these jobs measures, but to further reduce the long-run deficit.
Too Little, Too Late for Obama?
Edward B. Barbier
Professor of economics at the University of Wyoming.
This is the type of jobs program initiative that many economists—and the American people—have been waiting at least six months for. In fact, the program would have been most effective if it had been announced and launched simultaneously with an endorsement by the President of the Bowles-Simpson deficit reduction plan, when the latter was first unveiled in November 2010. Then the economy would have had a double punch of a short-term job and recovery stimulus coupled with a medium-term deficit and debt reduction plan. Much needless political wrangling, political uncertainty, and loss of consumer and investor confidence would then have been avoided. Perhaps this program is better late than never. But we also run the risk that the jobs initiative is simply too little, too late.
I thought it was a very strong speech in terms of tone. I think at last the President acknowledged the extent of the jobs crisis in America and I think that thankfully the speech had a sense of urgency. We badly needed that. All in all, I think it was one of his better speeches. I like that the plan was substantial, the newest estimates are $450 billion. I like that some of the plan is directed toward hiring, credits for hiring. That will help reduce unemployment some.
But I do have some reservations about what the president said. One is the large majority of this plan is about tax cuts and tax credits, not real spending. Fortunately, there is some real spending on infrastructure and grants to the states. But we get much more bang for the buck with spending on infrastructure, with spending on unemployment insurance, and sending more money to state and local government than we do for tax cuts for business. For the most part, we’ve had those and it hasn’t worked. But these tax cuts for business and workers will not have the pop per dollar that direct spending would have had. In other words, for every dollar of direct spending, you get more GDP than you do for every dollar of tax cuts and therefore more jobs. So that was disappointing – that was the same old stuff.
Obama’s Unnecessarily Complicated Proposal
AT&T Professor of Economics at Case Western Reserve University
I think the key issue the economy is facing right now is a lack of demand. Consumers are not spending because they fear unemployment in the future, and/or have debts right now. My favorite proposal is the spending to fix schools and hire teachers. This proposal both directly creates jobs now, and adds to the capability of the economy in the future (better-educated citizens and workers). However, this proposal is only a small part of the total.
The business tax cuts and hiring incentives are not as effective at either creating jobs in the short term or expanding our productive capacity in the long term, because even if an employee is almost free, businesses don't need them if their capacity utilization is low. Thus, I worry that the proposal to subsidize temporary work gives businesses an incentive to lay off workers at full wages (or not to hire such workers), but instead to use the free temporary workers.
The infrastructure bank proposal seems unnecessarily complicated to me. Today the government can borrow at negative real interest rates. (That is right—investors are so worried about the future of the world economy that they are willing to lose a bit by holding Treasury bills, compared to the bigger risks they would take with other financial investments.) Now is the time to both employ people directly fixing our existing infrastructure and building new infrastructure for the energy-efficient economy we will need in the future (e.g., wind turbines and solar panels, as well as high-speed rail). Such spending would be a triple win: it employs people now, helps with the challenge of climate change, and makes the economy more productive in the future, so that the deficit is easier to pay back.
From this point of view, the president's focus on a program that Congress might pass may not be the best. It is not clear that Congress will pass much even of this program, and I am not sure that even if passed in its entirety it would solve either our short-term or our long-term problems. Instead, it might have been better for the president to focus on laying the groundwork for a different kind of national conversation that would lead to better outcomes in the medium term.
What Works and What Doesn’t
Economics professor at University of Redlands
Grants to retain teacher jobs and hire teachers: This program would be effective immediately and help many communities that are currently unable to properly staff their classrooms given their own budget problems. How widespread the effects would be is debatable, but if the goal is to provide jobs, this is an important one.
Tax credits for hiring military veterans: It wouldn’t have a major multiplier effect, but for this group of unemployed, it might produce immediate local results if an employer had a choice between hiring a vet and someone who had never served in the armed forces.
Summer jobs program for teenagers for 2012: If this program actually brought the teen-aged unemployment rate down significantly, then its effect could be large. A longer program would be better: more job skills and experience would be gained.
$4,000 tax credit for hiring anyone who has been out of work more than six months: Effect would be similar to the veterans tax credit.
Unemployment benefits extension for those willing to take temporary work: How much temporary work is out there? Even it has been declining.
Extension of employee side of the payroll tax cut: Americans are still quite scared. Their failure to spend is indicative of their still high sense of uncertainty. There’s no indication that by cutting payroll taxes, increased disposable income will be spent.
Mortgage refinancing to 4 percent: If this program was made affordable (refinacing fees weren’t prohibitive), then this could provide a sizable increase in disposable income. Given the use of 30-year mortgages in such a program, it would be more likely to produce a reduction in uncertainty and induce homeowners to spend much of their additional income.
Faster patent approval process: I think focusing on innovation is not helpful in thinking about the president’s proposed programs. Even if they’ve been used before that doesn’t mean that they lose their capacity to produce the desired outcomes.
President Obama’s hire a teacher, hire a vet, and hire a long-term unemployed person programs may not produce huge multiplier effects, but they do have the chance of putting many people to work and it is a jobs program. The infrastructure program has, of course, the strongest possibility of geographically large effects. It could also have a major impact in the areas of the country that have been hit hardest by the real-estate bust, since the growth in those areas had been fueled by construction and real-estate activities. Lots of unemployed people would be aided.
This whole program is obviously inhibited by his perception of what will have a chance of getting Republican votes. If there were more cooperation, we could have a much better, effective program