Two cheers and one jeer for the American Jobs Act
Two cheers for the President and his America鈥檚 Jobs Act. Cheer Number One: In presenting it to a joint session of Congress, he sounded as passionate and determined as he鈥檚 ever sounded.
Second cheer: He laid out the problem correctly and effectively. He explained why jobs and growth must be the nation鈥檚 first priority now 鈥� not the federal deficit. The economy is in crisis. People are hurting. So government must act, and act quickly. It鈥檚 irresponsible at a time like this to suggest that government should simply close down.
But a jeer because the jobs plan he presented isn鈥檛 nearly large enough or bold enough to make a major dent in unemployment, or to restart the economy.
$450 billion sounds like a lot 鈥� and is more than I expected 鈥� but some of this merely extends current spending (unemployment benefits) and tax cuts (in Social Security taxes), so it doesn鈥檛 add to aggregate demand.
The net new boost to the economy is closer to $300 billion. That doesn鈥檛 approach even half the gap between what the economy is now producing and what it could produce at or near full employment.
And much that $300 billion is in the form of temporary tax cuts to individuals and companies. Some of these make sense 鈥� enlarging the Social Security tax cut, extending it to employers, and giving small businesses a tax holiday for new hires.
But temporary tax cuts haven鈥檛 proven to be particularly effective in stimulating new spending in times of economic stress. People tend to use them to pay off debts or increase savings. Companies use them to reduce costs, but they won鈥檛 make additional hires unless they expect additional sales 鈥� which won鈥檛 occur unless consumers increase their spending.
That leaves some $140 billion for infrastructure 鈥� improving outworn school buildings, roads, bridges, ports, and so on. And $35 billion to help cash-starved states avoid more layoffs teachers. Both good and important but still small relative to the overall need.
Why did the President include so many tax cuts, and why didn鈥檛 he make his proposal sufficiently large to make a real impact on jobs and growth? Because he crafted it in order to appeal to Republicans. To get it enacted, he needs their votes.
I鈥檓 having a dizzying sense of d茅j脿 vu. The first $800 billion stimulus (spread over two years) wasn鈥檛 nearly large enough given the drop in aggregate demand. And half of it was in the form of tax cuts. The reason it wasn鈥檛 bigger and contained so many tax cuts was to get Republican votes. But its apparent ineffectiveness 鈥� it saved around 3 million jobs, but that didn鈥檛 save it from appearing to fail 鈥� made it harder for the White House to do anything more to stimulate the economy, and ward off what鈥檚 likely to be a double dip.
That鈥檚 been the heart of Obama鈥檚 dilemma. Big and bold enough to make a difference, and Republicans are certain to reject it. Small and focused on tax cuts, and maybe Republicans will bite. But even if they sign on, what鈥檚 the point of the exercise if it won鈥檛 have a measurable effect on jobs and growth?
And why would they sign on this time, anyway?
Republican Senate leader Mitch McConnell scoffs 鈥淭his isn鈥檛 a job plan. It鈥檚 a reelection plan.鈥� That鈥檚 precisely the problem. McConnell and company have stated publicly that their number-one objective is to unseat Obama and regain the presidency in 2012. They don鈥檛 want to give the President anything he could possibly claim as a victory. And they鈥檙e not terribly worried if the economy stays awful through Election Day because that鈥檚 the best way to fulfill their number-one objective.
The President would have done better with a plan that was big enough to make a real difference. And then, when Republicans rejected it, campaign on it.
So two cheers 鈥� for both the President鈥檚 style and his words. And one jeer: He failed on substance and strategy.
