Why Obama's Jobs Speech Was Important:
On September 8, 2011, President Obama
gave a much-anticipated speech on the American Jobs Act. The speech came right after the Labor Department reported no new jobs were created in August
, and with unemployment stuck at 9.1%. The economy must create between 125,000-150,000 jobs a month just to prevent the unemployment rate
from rising. So far, the recovery is adding, on average, 144,000 jobs per month. The $447 billion Jobs Act combines cost effective infrastructure spending and tax cuts. Obama challenged the Congressional Debt Reduction Committee to cut spending in other departments and close tax loopholes to make the Act deficit-neutral.
Familiar Ideas -- And Some New Ones:
Many of these ideas in the Jobs Act are similar to those from the Economic Stimulus Act
. To be fair, they seem to be working. In the last 18 months
, the economy has added 2.4 million private sector and 1.7 million government jobs.
Other ideas are new. Obama will ask FHA to make available homeowner refinancing at 4%. This idea, initially proposed by Pimco fund manager Bill Gross would use Fannie Mae and Freddie Mac to turn all 5-7% mortgages into 4% mortgages. Gross said this alone could lift housing prices 5-10%. Obama will also fast-track long-overdue free trade agreements with Panama, Colombia and South Korea.
Obama asked for a one-year extension of the payroll tax cut. Research
from the Congressional Budget Office
shows that every $1 billion in payroll tax cuts creates 13,000 new jobs.Cost: $175 billion = 2.275 million jobs
Obama will help small businesses by providing a tax break for every new hire that was among the long-term unemployed, a veteran or a student. This is still a drop in the bucket for small businesses, which create 70% of all new jobs. Cost: $65 billion = 845,000 jobs
Public Works Projects:
Obama asked Congress to pass $100 billion to build roads, bridges and schools. This is similar to the ARRA stimulus program
, which greatly relied on "shovel-ready" public works projects, and Obama's 2008 campaign platform
. According to a U Mass/Amherst study, public works creates 19,795 construction jobs per $1 billion spent. Cost: $75 billion = 1.3 million jobs
He also asked for direct aid to cash-strapped local governments to hire more teachers and firemen. The U Mass/Amherst study found that education spending is very cost effective -- every $1 billion spent on education creates 17,687 jobs.Cost: $85 billion = 1.5 million jobs
Benefits for the Unemployed:
Obama also asked for an extension of unemployment benefits
. The CBO study found that every $1 billion in unemployment benefits creates 19,000 new jobs. That's because the unemployed are most likely to spend any extra tax dollars. Another SOTU idea, making the tuition tax credit permanent, helps the unemployed who are going back to school, but doesn't put food on the table. White House officials admitted they were giving the Bush tax cut extension
time to work.Cost: $62 billion = 1.178 million jobs
Total Cost: $447 billion, to be offset with spending cuts elsewhere. Total Jobs: 7.098 million
Streamline the Patent Office:
In his speech, Obama mentioned that Congress passed patent system reform. Actually, this was proposed in March by Austan Goolsbee, Obama's former Chairman of the Council of Economic Advisers. Reform will reduce the backlog at the Patent Office, which is around 1.2 million. Without reform, delays take anywhere from three to seven years.
The House May Block Additional Spending:
The Republican majority
in the House has said it was open to infrastructure spending, unemployment benefit extension and trade bills. Let's hope Congress is over its obsession with reducing the $14 trillion federal debt
. Yes, the debt ratio
is 100% of GDP
, but now is not the time to remove fiscal support from the economy. Congress should have cut spending during the expansion phase of the business cycle
, to cool down the housing bubble. Instead, the debt grew by 50%
during those years, ballooning from $6-$9 trillion between January 2000 to December 2008.
A Real Jobs Solution:
There's plenty of room in the FY 2012 budget
to redirect current spending to whatever will leverage the most jobs. For example, the U Mass/Amherst study found that military spending
only creates 8,555 jobs for every $1 billion. Now that Osama bin Laden
has been brought to justice, less funding is needed for the War on Terror
. Military funding could be cut more than the 2%
already being proposed, and reinvested in programs that create more jobs.
Any Jobs Solution Must Include a Housing Solution:
To really jumpstart job creation, there needs to be a more aggressive solution to the foreclosure pipeline, which has about 1 million foreclosures
hanging over the housing market. At current sales rates, these foreclosed homes won't be absorbed for another year. The presence of so many low-priced houses is keeping housing prices depressed. Until the housing market rebounds, people won't feel confident about the future. New home construction, which usually contributes 10% to the economy, will remain largely absent -- as will construction jobs.
More needs to be done to help the housing market. For example, the Obama Administration has offered TARP funds to help homeowners. The HARP program is being blocked by the banks who are supposed to implement it. They are too risk averse, and only use the program to modify relatively safe mortgages. It hasn't really helped with the truly risky loans that are going into foreclosure. Any solution to the unemployment situation needs to address the housing crisis, which will restore the confidence needed to get demand back on track. Once customers are ordering products and services, businesses will hire once again. (Source: American Jobs Act Fact Sheet)(Article updated September 9, 2011)