Obama's American Jobs Act Speech 2011
How Obama Tried to Create Jobs in 2011
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. Unemployment was 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. He asked them to close tax loopholes to make the Act deficit-neutral.
Familiar Ideas -- And Some New Ones
Many of the ideas in the Jobs Act are like to those in the Economic Stimulus Act. To be fair, they seem to be working. They appeared to work. The economy added 4.1 million jobs between its passage and the night of the speech.
Other ideas are new. Obama will ask FHA to make available homeowner refinancing at 4%. The idea had been proposed by Pimco fund manager Bill Gross. It 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.
Tax Cuts: Obama asked for a one-year extension of the payroll tax cut. Research from the Congressional Budget Office showed that every $1 billion in payroll tax cuts creates 13,000 new jobs. Cost: $175 billion = 2.275 million jobs
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. It was similar to the ARRA stimulus program, which relied on "shovel-ready" public works projects. A U Mass/Amherst study, public works creates 19,795 construction jobs per $1 billion spent. Cost: $75 billion = 1.3 million jobs. He asked for direct aid to cash-strapped local governments to hire more teachers and firefighters. 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 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. He wanted to make the tuition tax credit permanent. That 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
Streamline the Patent Office: Obama thanked Congress for passing patent system reform. It had been 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.
Total Cost: $447 billion, to be offset by spending cuts elsewhere. Total Jobs: 7.098 million.
The House Blocked the Extra Spending
The Republican majority in the House was open to infrastructure spending, unemployment benefit extensions, and trade bills. But it didn't pass the Jobs Act. It was more obsessed with reducing the $14 trillion federal debt. Yes, the debt ratio is 100% of GDP, but it was not the time to remove fiscal support from the economy.
Congress should have cut spending during the expansion phase of the business cycle, That would have cooled down the housing bubble. Instead, the debt grew by 50% during those years. It ballooned 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. Once Osama bin Laden was brought to justice, less funding was needed for the War on Terror. Military funding could have been cut more than the 2% proposed. Those funds should have been reinvested in programs that created more jobs.
Any Jobs Solution Must Include a Housing Solution
To jumpstart job creation, there needed to be a more aggressive solution to the foreclosure pipeline. It held on million foreclosures that were hanging over the housing market. Those foreclosed homes weren't absorbed for another year. The presence of so many low-priced houses kept housing prices depressed. Until the housing market rebounded, people didn't feel confident about the future. New home construction, which usually contributes 10% to the economy, remained absent. So did millions of construction jobs.
More should have been done to help the housing market. For example, the Obama Administration offered TARP funds to help homeowners. The HARP program was blocked by the banks who were supposed to implement it. They were too risk averse. They only used the program to modify relatively safe mortgages. It didn't help with the truly risky loans that still went into foreclosure. Any solution to the unemployment situation needed to address the housing crisis. That would have restored the confidence needed to get demand back on track.(Source: American Jobs Act Fact Sheet)