Sunday, September 18, 2011

Is President Obama's Jobs Stimulus Old, Tired, and Purposefully Inadequate?

Enough time has past since President Obama's $467 billion jobs stimulus announcement to provide a re-evaluation of the proposal from different perspectives.  John Quiggin, writing from Australia, believes President Obama has recognized he cannot form a bipartisan  relationship with the Republican Party and rejected the advice of his advisors and proposed a a more substantial plan, although still modest.  Quiggin believes this has set the re-election stage as the Republican Party will reject even this modest package which is one-half the size of the 2009 stimulus and that President Obama has abandoned the speech of austerity presenting a clear choice against the destruction of austerity on unemployment, economic growth, and local and state governments for voters.  I would very much like to believe Mr. Quiggin is right, but he ignores the President Obama is personally a deficit hawk and has not yet grasped the economic seriousness of the more than 16%, including the discouraged workers, unemployed workers in America.

On the other hand in America, Robert Reich, a former U.S. Secretary of Labor, finds President Obama's targeting of Medicare and crafting a $2-3 trillion decrease in spending over the next ten years as odd given the economy will still be anemic in 2013 if we manage to avoid a double dip.  Such spending cuts are likely to make unemployment stratospheric.  Even if the average monthly job growth of the last decade were to miraculously appear, it would still take until 2024 to get official (now at 9.1%) unemployment down to 6%.  He sees President Obama reinforcing the Republican conceit that the deficit --- not unemployment and little economic growth --- is the problem.  The President failed to propose a more audacious plan to get American workers back to work and provide fiscal support promoting economic growth and this is makes it a failure of both parties.

While President Obama's tax cuts will put about $150 billion into the hands of American households, which could theoretically create a relatively small temporary stimulus, these are not ordinary times and history provides evidence that people save when debt is high, jobs uncertain, and the extra money temporary.  What is there to get excited about if unemployment is reduced just a little below 9%?

Macroeconomic Advisers had revised their original estimates of economic impact to GDP growth of 1 1/4% by 2012 by pulling growth forward from 2013, an increase of 1.3 million jobs (the 2009 ARRA provided about 1.2 million jobs), and the spending cuts will cause fiscal drag which will probably not show up until 2013.  In essence, the plan is dependent on shifting growth from the future (2013) forward, when the economy will hopefully be better.  This is macro economically unrealistic.

James Hamilton wants us to rethink what we need to do to exploit our natural resources to spur economic growth without creating a National Fraud and Exploiters Corps.

Bond Girl at Self-Evident points out that the proposed reduction in itemized interest and other deductions could directly effect the municipal bond market, which is the primary vehicle for infrastructure in this country, through reduced demand.  It should be remembered that the ARRA did provide infrastructure projects which were slow to start, but did have some modest temporary stimulus.

If you look at the Georgia Work Program upon which the President will apparently model the unemployed worker training initiative, you will find that the transition time from unemployment to employment is about the same for both those Georgia workers who participated and did not participate, except that those who participated worked 24 hours a week for free and successful hires got jobs which required a high school diploma or less.  This is not creating the type of fair labor social contract a true republican democracy should promote and support.

It should be remembered that small businesses, even more than large businesses which have a more sustainable business model, cannot afford to hire without the sales to demand the need.  Tax incentives to hire are temporary.  Most small businesses cease existence within 5-7 years.  Many small businesses being started are unemployed workers who have no choice and are being run on shoe string financing.  Tax incentives to hire is an hour glass approach.  Tax incentives may create more accounting jobs, but is not likely on a micro economic level, historically, to create demand to hire.  The sad fact is that, as happened in the post 2001 recession, job postings are not picking up in volume.  Management has devised more efficient ways to not need more employees, particularly in a period of slow economic growth and low sales.  In the meantime, the U.S. working age rate of poverty has hit a record high at 13.7% for 18-64, which is up from 12.9% in 2009 and 10.5% in 1966.  Since its peak in 1999, household median income is down 7% or 3800 2010 dollars.  If the elderly are excluded, household median income is down 10% or $6300, including down 2.6% last year, for the largest decline since 1987.  Real  income for working age families is at its lowest level since 1994.  This is a lost decade for the Middle Class which has intensified the wage and wealth inequality in the United States.  This type of inequality has a very corrosive effect on democracy, particularly when 400 families have 50% of the wealth in the United States.

At the same time the reduction in fiscal spending on the national level during a time of financial tightening is the wrong direction and will only make the situation worse.  Jobless claims are rising again; retail sales are down; manufacturing is weaker.  Rather than focusing on jobs we are told the U.S. Postal Service could "default" on it pension payments required by law, because they are losing money in their operations.  We are told rural areas could lose their post offices when the resulting lack of services would be a significant hardship as they are not suburbanites within easy commuting distance of another post office.  It is a federal government agency and, as such, it cannot economically default unless Congress and the President have politically decided to let it default.  This is misplaced direction.  We need to create jobs not find excused to isolate less wealthy Middle Class and poor families from services.

As we pointed out in our prior post on this subject, for $300 billion all unemployed workers could be back working on quality projects in education, infrastructure, health, social needs, and cultural preservation/creativity which would not only create economic growth but enhance the quality of life through the creation of a National Jobs Corps.  This means more wealth for more people rather than a select few while creating sustainable economic growth.  Is this a problem? 

Dear President Obama would you please accept the mantle of leadership and propose an audacious jobs program.

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