Economists say Obama plan would create jobs, short term

By Kevin G. Hall, McClatchy Newspapers
Posted Sept. 09, 2011, at 7:23 p.m.

WASHINGTON — Could it work? That’s the question being asked about President Barack Obama’s new jobs plan.

Independent experts answered Friday with a qualified yes.

The American Jobs Act would create jobs and help keep a struggling economy moving forward, said a number of economists. But they cautioned that it wouldn’t shift the nation’s business gears into overdrive, and it offers only modest benefits, given the headwinds the economy faces from a moribund housing sector and growing financial turmoil in Europe.

As only a short-term stimulus plan, the American Jobs Act wouldn’t address structural and external problems holding back the U.S. economy. And since the proposals’ very design is transitory, it makes them difficult to compare against the broad economic plans being proposed by GOP presidential candidates Mitt Romney and Jon Huntsman, who hope to replace Obama.

Macroeconomic Advisers, a leading economic forecast group, projected that Obama’s plan “would give a significant boost to [the gross domestic product] and employment over the near term.”

There’s the rub. Obama’s plan aims to deliver only a short-term fix to keep the economy moving forward and avoid falling back into recession.

Then there’s the price tag, $447 billion. That would add to the sum that must be covered by a special congressional deficit-reduction committee aiming to cut $1.5 trillion from federal spending over a decade. Obama’s plan counts on this committee to find almost $2 trillion in cuts.

“It is a political question. Is there a worthwhile political tradeoff? The economics of it are not worrisome,” said Chris Varvares, president of St. Louis-based Macroeconomic Advisers. He favors raising the deficit short term as long as there is a clear path to bringing it down over time. “The current hysteria over the deficit is misplaced … our current deficit is not the problem, i t is our future deficits.”

Varvares and colleagues think the Obama plan would raise GDP by 1.3 percentage points through 2012, resulting in 1.3 million more people employed. They think the plan would add another 0.2 percent to growth in 2013.

That’s in the ballpark of estimates from economists at Bank of America Merrill Lynch, who in a research note Friday estimated the American Jobs Act could add between 1 and 1.5 percentage points to economic growth next year. They also noted that for every percentage point of growth, the jobless rate falls by three-tenths of a percentage point.

“If that holds, we would see the unemployment averaging 8.6 percent by the end of 2012, instead of 8.9 percent,” said the economists.

Mark Zandi, the chief economist for forecaster Moody’s Analytics, envisioned 1.9 million jobs created if the plan passes as proposed, something he considers unlikely. However, about 40 percent of the jobs — 750,000 — would come from the payroll tax holiday provisions alone.

Zandi noted that benefits from the Obama plan wouldn’t be lasting ones.

“The plan also results in weaker growth in 2013, as most of the tax cuts and spending increases are temporary and fade during the year,” he said. “Presumably the economy will be strong enough to handle it by then, but that is far from certain.”

That’s important, because there’s no guarantee that hiring and growth associated with the plan would be permanent. In fact, it’s one reason for the negative public view on prior federal stimulus efforts, various programs such as “Cash for Clunkers” to stimulate auto purchases, and a first-time homebuyer tax credit. All these efforts provided a spark, but the spark proved temporary.

“Businesses repeatedly see that, so they respond to it in a temporary way,” said Martin Regalia, chief economist for the U.S. Chamber of Commerce, which raps Obama for not seeking more-lasting job creation. “It does help temporarily maintain or boost demand because it puts more spendable money in people’s pockets, and some of that will be spent. If all you want to do is boost the growth rates for next year, this will probably do that.”

http://bangordailynews.com/2011/09/09/politics/economists-say-obama-plan-would-create-jobs-short-term/ printed on September 21, 2014