The jobs plan

By Felix Salmon
September 9, 2011
speech last night.

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

I’m not a fan of the kind of political rhetoric that Barack Obama employed for much of his speech last night. “Pass this jobs bill” is not exactly “tear down this wall.” And at the risk of getting nitpicky, it’s difficult to say that “America can be number one again” and “America will be number one again” towards the end of the speech, only to finish with the assertion that “America remains the greatest nation on Earth”: my reaction was “wow, that was quick.”

But, as Paul Krugman says, there’s a lot to like in the nitty-gritty of the proposals, even if most of it was hard to discern in the speech itself. This, in particular, comes close to something I’ve been advocating for a while:

The President’s plan will completely eliminate payroll taxes for firms that increase their payroll by adding new workers or increasing the wages of their current worker (the benefit is capped at the first $50 million in payroll increases).

There are two things I’m less than ecstatic about here. First is the $50 million cap; second is the elimination of payroll taxes just for handing out pay rises, rather than for actually hiring people. But maybe there are logistical reasons why it’s hard to measure the number of employees, rather than just the total payroll in dollars.

But the idea of this bill, I think, is to attack the jobs crisis on multiple fronts, rather than placing a lot of faith in any one tax cut or similar. There’s the tax credit for hiring unemployed veterans, which is a great idea, along with another tax credit for hiring anybody who’s been unemployed for more than six months. There’s infrastructure investment, concentrated on schools, along with the return of our old friend the National Infrastructure Bank. That was a great idea when Obama first proposed it during the presidential election campaign, and it will remain a great idea when it’s proposed again every few years or so.

And! The wholesale mortgage refinance proposal managed to make it into the bill as well. That’s a great little stimulus program, which will cost the government little or nothing. It probably won’t create much in the way of jobs, but we need growth as well as jobs, and it will help, at the margin, on the growth front.

My least favorite part of the bill is probably the conceit that, as Obama put it, “everything in this bill will be paid for. Everything.” This is a particularly obvious symptom of the virulent disease which has long reached pandemic proportions in Washington — taking a headline from George Magnus, I call it Deficit Attention Disorder.

This is a stimulus bill; stimulus bills, by their nature, can’t be revenue-neutral or fully paid-for. And this one isn’t. Instead, it seems like Obama is going to tot up the cost of the bill — $447 billion is the number doing the rounds — and add it to the $1.5 trillion that the deficit supercommittee is being charged with cutting from the budget over a decade-long period. That’s not paying for a bill, it’s passing the buck to someone else.

And it’s pretty sad commentary on the state of American politics — and the way that the horrible personal-finance metaphor seems to have become embedded in the national psyche — that Obama considers this both necessary and a good idea.

The bottom line here, I fear, is that the best we can hope for is that this second stimulus will manage to keep the economy slightly above stall speed, and thereby help us avoid the job losses associated with a nasty double-dip recession. Avoided job losses are very good things, but they’re not new jobs. And they don’t get you re-elected.

More From Felix Salmon
Post Felix
The Piketty pessimist
The most expensive lottery ticket in the world
The problems of HFT, Joe Stiglitz edition
Private equity math, Nuveen edition
Five explanations for Greece’s bond yield
Comments
22 comments so far

The pay rise benefit is good in the sense that it will help to forestall deflation. But it’s just far too small to actually do anything, so it’s basically worthless.

Posted by JasonDick | Report as abusive

“Stimulus” is not synonymous with “deficit”, and if the revenue increases in a bill come from such sources that they are likely to be less of a drag than are the expenditure increases stimulative, it would be possible for a bill with net stimulus to be deficit-neutral. This bill probably isn’t, but I agree with your first two main points; it looks like it’s probably a good bill, and he did a really obnoxious job of trying to pitch it. I hope his sales pitch didn’t create so much pique among Republicans that nothing like it has a chance of passing this fall.

Posted by dWj | Report as abusive

Oh, by the way, it’ll never pass. Never ever. So there’s that.

Posted by WHS | Report as abusive

@WHS: That it’ll never pass is at least half the point of the bill: When the Repubs shoot it down, O & the Dems can – no, WILL – use “SAID NO TO JOBS!” to beat the Repubs over the head from now until Nov2012. We can pick over the finer points of the fiscal policy until the cows come home, but as a political maneuver, it was pure Muhammad Ali.

Posted by EricVincent | Report as abusive

“That’s not paying for a bill, it’s passing the buck to someone else.”

Well, in CBO world higher spending or lower taxes today offset by promised reductions in spending or increases in taxes ten years from now counts as “paid for”.

And Obama’s plan has already stimulated the economy a bit. I bought a new sports car, and its paid for! As I explained to me wife, next week we will review our proposed spending for the next ten years and find some cutbacks.

Posted by TomMaguire | Report as abusive

Obama et al are all looking for a “magic solution” to a very complex problem. Both the Euro zone and dollar zone issues are solvable with effective leadership and the need to spend a huge amount of political capital – which may lead to political suicide. From a personal observation the US lacks sound economic leadership. We have not had effective leadership in this area for several generations. When you loose the institutional knowledge of sound economics then you have to reinvent what you lost which becomes a politically ugly road to recovery. The first step to recovery in the US is a major overhaul of the awful income tax code that skews and distorts investment in jobs and businesses. The starting point is to allow allow profits and earnings from overseas operations of US companies to “come home” tax free. We could end up with a trillion dollar shot in the economic arm. A lot of economic stimulus proposed by Obama is “pork” and does nothing to get people working again. This is all pandering to special interest groups. If he truly wanted to get the most for each dollar spent he would have suspended the Davis-Bacon prevailing wage laws that require what is essentially “union wages” to be paid for public works projects. This increases the cost of projects between 30% to 50%. 80% percent of the general contractors are “non-union” which means only those connected with the unions or are willing to raise their wages get the work. I have known a number of well respected contractors who pay good wages and have an excellent track record who will not bid on public projects because of the costs and paperwork involved. Economic recovery requires more than speeches, pandering and saying no.

Posted by yeomanwarder | Report as abusive

“But, as Paul Krugman says, there’s a lot to like in the nitty-gritty of the proposals, even if most of it was hard to discern in the speech itself.”

Your citation and paraphrasing of Krugman is incorrect and misleading!

Attempting to gain credibility for; “This, in particular, comes close to something I’ve been advocating for a while:” by trying to ride the coat-tails of someone else is shameful.

If you thought there was a lot to like, than say it using your own credentials and site “The American Jobs Act”.

If you want to cite Krugman, than quote him or paraphrase him correctly. Something like: Much better than expected, Bolder than expected, Most likely to dent unemployment if passed, or even, Not as bold as I wanted but better than nothing.

If you need to cite someone else to support your argument then cite someone who agrees that cutting taxes right now is good for growth.

As for Krugman stance:

“And it’s unclear, in particular, how effective the tax cuts would be at boosting spending.”

I will give you credit for providing links, but you still show a low level of ethical standards.

Posted by giganteum | Report as abusive

We could probably do a large stimulus without the world markets deciding we were no longer a good credit risk. But been there, done that, to little effect, and I don’t think it would work this time either.

In fairness, nor am I a fan of “jobs-killing regulations” rhetoric. Does our current level of regulation hinder jobs development? At the margins, probably. Will reducing business regulation unleash a torrent of jobs? Almost certainly not.

I think that if we had a real leader, he could actually talk our way out of recession, with, optimism, consistency, and steadfastness; you know, leadership. Regrettably, we don’t.

Posted by Curmudgeon | Report as abusive

Well, the stock market went down so Obama must have said something that was really in the benefit of the ordinairy American.

Time to stop the overseas tax benefits for China. Get the American activities home. It’s not ethical and sustainable (apparently) to earn your income by cheap labor in a communist country, and whoever came up with it really didn’t get it. What’s next ? Bringing all labor to Iran ? Come on, stop it. There is always a country in the world where the government has enough dicatorship power to offer low cost manual labor.

Posted by FBreughel1 | Report as abusive

This is a good, solid, reasonable plan. However, I don’t understand why, after every demonstrable confrontation between the Republicans and Obama where the Republicans make it as clear as anything you’ll ever see in American politics that they are not interested in ANYTHING Obama has to say or wants to do. They are only interested in stopping Obama from accomplishing everything he wants to accomplish.

It doesn’t matter if it’s something that had previously been proposed by Republicans. After all, the part of the healthcare bill that Obama proposed that the Republicans prevaricated into “death panels” was an idea originally proposed by Republicans. The Small Business Jobs Act that Obama proposed was chock full of tax cuts for businesses that Republicans should have loved. They were united against passing it, until one outgoing Republican and two other moderates acquiesced.

When will the President and the American people recognize the truth, that this Republican Congress is not interested in governing unless they can do it alone? And, of course, that should disqualify them from being allowed to do so.

None of this nonsense is going to change until we end the corruption in Washington, and in our state governments, and adopt publicly financed elections.

Posted by doggydaddy | Report as abusive

EricVincent: I think you’re mistaken. With a handful of exceptions at the margins, voters don’t care about all the feints and dodges happening in DC. The electorate, in the aggregate, isn’t a thinking, rational person, and definitely isn’t capable of internalizing competing arguments in the way that you’re describing. To the extent that a great mass of voters can think, it’s in a reflexive, lower brain stem sort of way.

And the electorate’s animal brain only reacts to certain stimuli. Chief among them: economic performance. If the economy looks good, most of them vote for the incumbent. If the economy looks bad, the incumbent’s supporters are demoralized while swing voters decide that the challenger couldn’t possibly be worse. But most voters are completely oblivious to the rhetorical back and forth happening on the floors of Congress, and the ones that DO know about it are viewing it through a subjective lens that twists speeches to meet preconceived notions. It’s simply not important if Obama wins the argument or proves that the Republicans are causing unemployment. Hardly anyone will notice and even fewer will be convinced.

Posted by WHS | Report as abusive

More focus-group-tested lies from the great prevaricator. Hopefully no one believes one word he says any longer.

Posted by paul1149 | Report as abusive

The original stimulus was a big, fat failure and will be more of the same on the road to a big, fat Greek-style bankruptcy.

These are failures because the whole concept of boosting the economy by spending money we dont have does not work.
Every dollar thrown out of helicopters or spent on boondoggles does NOT create wealth, it requires taking money FROM some other pocket. When Obama says it is paid for (by making someone else make the decisions he wont make) he is literally passing the buck.
It’s a zero sum game, higher taxes kill more jobs than the govt spending creates, and only ‘works’ through the suspension of disbelief in rational expectations. Well: The price of gold tells you all you need to know about how the markets have rationally expected results from fiscal and monetary dollar dilution.

The least harmful thing the govt could do is cut taxes, but even there he blows it. businesses wont hire based on temporary band aid tax cuts. If the tax should be lower, make it permanent (but then, how will obama fix the hole he is blowing in social security?)

We can help create real wealth by getting Govt out of the way of wealth creation. Drilling here, repealing obamacare, having a regulation moratorium, simplifying the tax code with lower rates and fewer special credits, they would stop the job-killing out of DC without costing a dime.

Hundreds of thousands of jobs have been squashed due to new regulations the Obama administration is adding. Stop the madness. Repeal Obamacare.

Posted by Patmc | Report as abusive

“Well, the stock market went down so Obama must have said something that was really in the benefit of the ordinairy American.”

Yeah, every working American with a nest egg, a union pension fund or a 401k is just overjoyed that the market responded to Obama’s speech by tanking 3% in one day. Such a vote of confidence in Obama’s MORE COWBELL tax-borrow-and-spend Jobs Plan.

Posted by Patmc | Report as abusive

“Well, in CBO world higher spending or lower taxes today offset by promised reductions in spending or increases in taxes ten years from now counts as “paid for”.”

Obama increased the public debt by 50% in 3 years. More debt added faster than at any time in our history.

It is absolutely absurd that, right after we get a ratings downgrade, he responds with a plan to double-down on deficit spending.

Actually more than absurd. Disgraceful.

Posted by Patmc | Report as abusive

Here would be a GREAT stimulus idea. Repeal every single tax hike Obama ever imposed:

• A 156 percent increase in the federal excise tax on tobacco
• Obamacare Individual Mandate Excise Tax
• Obamacare Employer Mandate Tax
• Obamacare Surtax on Investment Income: Creation of a new, 3.8 percent surtax on investment income
• Obamacare Excise Tax on Comprehensive Health Insurance Plans
• Obamacare Hike in Medicare Payroll Tax
• Obamacare Medicine Cabinet Tax
• Obamacare HSA Withdrawal Tax Hike
• Obamacare Flexible Spending Account Cap — aka “Special Needs Kids Tax”
• Obamacare Tax on Medical Device Manufacturers
• Obamacare “Haircut” for Medical Itemized Deduction from 7.5% to 10% of AGI
• Obamacare Tax on Indoor Tanning Services
• Obamacare elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D
• Obamacare Blue Cross/Blue Shield Tax Hike
• Obamacare Excise Tax on Charitable Hospitals
• Obamacare Tax on Innovator Drug Companies
• Obamacare Tax on Health Insurers
• Obamacare $500,000 Annual Executive Compensation Limit for Health Insurance Executives
• Obamacare Employer Reporting of Insurance on W-2
• Obamacare “Black liquor” tax hike
• Obamacare Codification of the “economic substance doctrine”

Posted by Patmc | Report as abusive

doggydaddy, nobody with more than two brain cells to rub together thinks Obama has something intelligent to say on any topic.

Posted by Danny_Black | Report as abusive

Danny_Black, that is untrue and unnecessarily antagonistic. You make yourself look small with sweeping insults like that. I know several intelligent people who I respect who nonetheless believe in Obama.

I don’t personally believe the proposals will help, however. As fiscal stimulus, it isn’t nearly enough to make a difference (and is counterbalanced by unspecified cuts elsewhere?). I would rather see sensible and sustainable tax reform — pass a tax code that we can live with for the next 20 years. Uncertainty is deadly.

Posted by TFF | Report as abusive

TFF, I know plenty of intelligent people who would like to think Obama has something insightful and intelligent to say on something but when you push them to actually name one of those things…..

Posted by Danny_Black | Report as abusive

That is as may be, Danny_Black, but it isn’t quite what you said.

I actually approve of many of the provisions in “Obamacare”, including the extension of dependent coverage and the fix for “pre-existing condition” limitations. Those are both pretty expensive provisions, however, and I don’t think enough real steps were taken to control costs. Pushing the expense onto the insurers simply jacks up premiums for the insured.

Posted by TFF | Report as abusive

Here is my assessment of the Obama plan

Here is a “Back of the envelope” moderate-optimistic scenario.
Positives, negatives, and assumptions after the chart.

http://economicmaverick.blogspot.com/201 1/09/analysis-of-obama-jobs-bill.html

Summary:

1. Economy could see net job creation of 200K to 300K per month in 2012, for a total of around 3 Million net jobs in calender year 2012
2. Of that, 80% or 2.4Million jobs will be reasonably attributable to the proposed Obama Jobs bill.
3. Projected 2012 GDP growth of 4.7%, of which 2.7% is attributable to the Jobs bill
4. Very high uncertainty associated with this forecast, both upward and downward.

The uncertainty is driven by a low level of confidence on the economic multipliers for the various stimulus elements, especially the tax cuts. Traditional multiplier calculations may not fully account for the effects of a balance-sheet recession from the excessive consumer debt-overhang. This may particularly impact the efficacy of tax-cuts as stimulus

Posted by EconMaverick | Report as abusive

If I need to hire anyone it will be based on the growth of my business. As soon as I need another employee, I’ll hire a qualified vet since there is a tax advantage. However, since I’m a doctor and medicare is scheduling a 29% cut while my malpractice rates are going up 25%, I doubt I’ll have the revenue to hire any new people next year. All these projections are fantasy and I hope in 2012 we get someone in charge who has a basic understanding of business priciples. The first stimulus money was used in my home town for “walk, don’t walk” signs at a crosswalk on State hwy 441. On one side of the 4 lane highway is a poultry plant, on the other side is some woods. This type of spending on bogus shovel ready projects does not encourage me as a business man that the govt programs are doing any good. The govt needs to back off and let the economy recover itself!!!!!!!!!

Posted by zotdoc | Report as abusive
Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/