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| Word cloud of Obama's speech |
Two cheers for the President and his America’s Jobs
Act. Cheer Number One: In presenting it to a joint session of Congress,
he sounded as passionate and determined as he’s ever sounded.
Second cheer: He laid out the problem correctly and
effectively. He explained why jobs and growth must be the nation’s
first priority now — not the federal deficit. The economy is in crisis.
People are hurting. So government must act, and act quickly. It’s
irresponsible at a time like this to suggest that government should
simply close down.
But a jeer because the jobs plan he presented isn’t
nearly large enough or bold enough to make a major dent in
unemployment, or to restart the economy.
$450 billion sounds like a lot – and is more than I
expected — but some of this merely extends current spending
(unemployment benefits and much of the Social Security tax cut), so it
doesn’t add to aggregate demand.
The net new boost to the economy is closer to $300
billion. That doesn’t match even half the gap between what the economy
is now producing per year 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 — 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’t 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’t make additional hires
unless they expect additional sales – which won’t occur unless
consumers increase their spending.
That leaves some $140 billion for infrastructure –
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’t 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’m having a dizzying sense of déjà vu. The first
$800 billion stimulus (spread over two years) wasn’t nearly large enough
given the drop in aggregate demand. And half of it was in the form of
tax cuts. The reason it wasn’t bigger and contained so many tax cuts was
to get Republican votes. But its apparent ineffectiveness — it saved
around 3 million jobs, but that didn’t save it from appearing to fail —
made it harder for the White House to do anything more to stimulate the
economy, and ward off what’s likely to be a double dip.
That’s been the heart of Obama’s 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’s the point of the exercise if it won’t have a
measurable effect on jobs and growth?
And why would they sign on this time, anyway?
Republican Senate leader Mitch McConnell scoffs
“This isn’t a job plan. It’s a reelection plan.” That’s 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’t want to give the President anything he could possibly
claim as a victory. And they’re not terribly worried if the economy
stays awful through Election Day because that’s 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 — for both the President’s style and his words. And one jeer: He failed on substance and strategy.
Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He writes a blog at www.robertreich.org. His most recent book is Aftershock.
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