James Pethokoukis

Politics and policy from inside Washington

Sinking Dem polls force Stimulus 2.0

November 13, 2009

Get ready for Stimulus 2.0 — Extreme Jobs Edition. Yes, the U.S. labor market is slowly healing. The declining number of monthly job losses and weekly initial unemployment claims show that. Yet President Obama still felt the need to announce a ‘jobs summit’ at the White House next month.

That’s compelling evidence that the White House doesn’t believe the job market is mending nearly fast enough to keep unemployment from trending higher — or Democratic electoral prospects in 2010 from trending lower.

The summit is likely a table setter for Obama to announce Stimulus 2.0 (though he surely won’t use the word ‘stimulus’) at his State of the Union address in January. Indeed, Harry Reid is already cooking up a plan in the Senate.

How much money are we talking about? Alec Phillips of Goldman Sachs calls $250 billion over three years a “conservative” estimate. And what might be in the bill? Look for more highway spending, more aid to state and local governments and some sort of business hiring tax credit.

All this represents a sharp departure in message from the White House, which has previously counseled patience. Let the $787 billion American Recovery and Reinvestment Act work, Team Obama kept saying. Even as the unemployment rate blew past 8 percent — a level of joblessness that the stimulus was supposed to prevent — the White House stuck to its guns and dismissed the need for significant new job creation efforts.

On the political side, there were fears that a new package would be tantamount to admitting Stimulus 1.0 was a failure and that it would distract from healthcare reform. On the economic side, many advisers wanted Obama to pivot toward deficit reduction as soon as possible and not spend more on stimulus.

(Indeed, the summit news came as the idea was floated that the administration might use unspent TARP funds for deficit reduction. Obama may also use the January address to announce a commission to deal with the long-term fiscal deficit as well as near-term limits on discretionary spending. Not only is the White House trying to appease bond vigilantes, but also moderate Democrats.)

But economic anxiety and impatience proved lethal for Democrats in the New Jersey and Virginia gubernatorial races, and may cost the party again in the 2010 midterms. That and the surge to double-digit unemployment changed the White House calculus. And don’t think David Axelrod didn’t notice that Republicans have overtaken Democrats 48-44 in the generic congressional ballot.

The new emphasis on jobs might be too late. Indeed, “new” is the appropriate word since the first package was not geared toward creating jobs so much as increasing economic output, as Lawrence Summers recently clarified. Temporary income tax cuts and credits, for instance, have a poor record of generating jobs.  As it is, some economists are looking for unemployment to hit 11 percent in 2010. David Rosenberg of Gluskin Sheff doesn’t see 13 percent as out of the question.

But better for the White House, from its perspective, to take the initiative and adjust their 2010 agenda now — so long cap-and-trade –  than have Speaker John Boehner do it for them in 2011.

Comments

One of the smartest things to do would be to drop this whole short-term stimulus approach and get Congress to reauthorize the surface transportation programs known as SAFETEA-LU, which has been tested and we know works. It will create jobs and allow the states to plan meaningful transportation infrastructure investment, not just fill potholes. Many Democrats and Republicans get this, if they’d just drop the political gamesmanship.

Posted by Mike Bazinet | Report as abusive
 

Virginia unemployment is on the rise, but conditions vary throughout the state according to this heat map:http://www.localetrends.com/st/va_vi rginia_unemployment.php?MAP_TYPE=curr_ue

 

Stimulus 2.0 isn’t going to fly with the public and might well inflame opinion even more against the Democrats. A Stimulus 2.0 will invite all kinds of inconvenient questions from the public like, “Hey geniuses, your super-duper-can’t-fail stimulus 1.0 DID FAIL. What makes you think Version 2.0 will work any better?” and “You want MORE money? What the hell did you do with the billions we gave you before?”

Posted by MarkJ | Report as abusive
 

A little unclear how the lack of spending upfront because of the lack of “shovel ready” projects and organization will be remedied by ‘Stim2.0 – More Handouts’? How many times can you same the same makey fake believe “job”?

Posted by bandit | Report as abusive
 

In the end, these temporary jobs building roads to nowhere will fail, because they are temporary. The Feds are fighting human nature, and failing. A payroll tax holiday and backing off on threats of new taxes would let people spend their money on what they want to buy, signalling business to invest in areas of demand that might be sustainable, and hiring people to do jobs that create things that people want.Here’s a hint, Washington. Paying more money for the same energy I already use is a loser. So is paying more money for the health insurance I already have.

Posted by MarkD | Report as abusive
 

ZOIKS! The economy may come back on its own, despite the Stim 1 death blow! Quick, to the batcave! We must think up some way to kill it….I’ve got it! Stim 2! That oughta put the economy on the floor, then health reform and cap-n-trade will be like a silver bullet and a wooden stake through its black, capitalistic heart. Go liberals! Kill that economy!

Posted by higgins1990 | Report as abusive
 

For Pelosi this is stimulus number 3. How’s that worked out? Unemployment has gone from around 4.3% to 10.2% since she and Reid took control.Dollar = Pelosi Peso

Posted by Army of Davids | Report as abusive
 

Wouldn’t this be stimulus 3.0? There was the check that was written from the IRS early in the year, and then the one trillion dollars of pork.

Posted by Sam Spade | Report as abusive
 

If they’re suddenly so concerned about jobs creation, why don’t they take the unspent portion of Porkulus 1.0(which is most of it) and use that money now for jobs creation programs? (Not that I necessarily agree that such spending in fact results in the creation of private sector jobs.) That money, after all, is already included in the deficit. But they won’t do that because that money is being held in reserve for pre-election spending among favored Democratic constituencies.Small business people, who provide the bulk of the jobs in this country, currently stand on the sidelines waiting to see what kinds of havoc the Obama administration and Congress will wreak on them. Porkulous 2.0 (or 3.0) will not move them.

Posted by SukieTawdry | Report as abusive
 

So… the labor market is recovering because of a “reduction in the rate” of job loss? Yeahright.Retailers and the firms which support them are beginning their holiday-season ramp-up, which this year means retaining people they otherwise would furlough. After January, the labor market will plummet like a dead goose once again.Or should I say “plummet like a lame duck”?

Posted by Mike C | Report as abusive
 

The economy will heal faster if they just leave it alone.This is not a standard, run-of-the-mill recession, caused by routine business cycle oversupply and under-demand. I wish they would stop treating as one.This recession is a restructuring, driven by excessive debt… personal, business, and government; both here and abroad. And since all of this “stimulus” is borrowed money, the positive effects of the spending cannot exceed the negative effects of the new debt.After all, if the problem is too much debt, how can more debt fix it?

Posted by Three Chord Sloth | Report as abusive
 

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