Obama's New Jobs Plan
Leaves Both Sides Unhappy
When it comes to Washington policy making politics almost always trumps economics. Some will say that was the case at the Brookings Institution when President Obama outlined his latest jobs plan. But did it? Or more specifically, can the two be separated?
Democrats know their re-election chances are underwater unless the economy comes back. Speeches and plans may be good politics, but they won’t matter if the jobless rate is over 10% come next November. Showing you care is all well and good, but putting people to work is far more important, both politically and economically. The problem for Obama is doing that quickly may be almost impossible.
In fact, listening to some parts of Obama’s plan suggests that the White House isn’t only worrying about 2010, but also the economy in 2011 and 2012. That’s why Obama is talking about more multi-year construction of roads, water treatment plants and other infrastructure. And why he’s at least talking about long term deficit reduction.
Ironically, Obama’s plan will attract critics to his right and left. The labor-backed Economic Policy Institute wants $400 billion worth of spending and a tax on trading of stocks to help pay for it. Republicans say that Obama’s idea to grab some of the unused TARP bank relief should instead go back to taxpayers via reducing the budget deficit.
Diane Swonk, chief economist with Mesirow Financial, says Obama has a reason to worry about job creation in the next few years. For about two years coming out of the recession in 1982 the economy grew at an 8% clip. The first couple of years this time around look to increase only about 3%. Even so, she says that unused TARP money should go for deficit reduction because if not now, when?
Obama says choosing between deficit reduction and jobs for the future “is a false choice.” His hope is that his plan will keep the recovery going so that higher tax revenues will result in lower deficits. It could happen. What could also happen is that while fiscal stimulation is going on, the Federal Reserve decides that it should reverse monetary stimulus. It could happen. In fact, during his Senate confirmation hearing last week, Fed chairman Ben Bernanke said “it’s a little bit early” to talk about more stimulus from federal spending because less than a third of the initial stimulus money has been handed out.
The White House vs. the Fed? Not for a while, not until the economy turns the corner. And maybe not then. But we’re headed down that path.