In perhaps their most direct confrontation yet, President Obama and his Republican rivals are set to deliver dueling national arguments this week on the economy, as the president prepares to unveil a series of measures designed to kick-start the anemic jobs market and Republicans meet for yet another national debate. The televised tête à tête comes on the heels of yet another bleak jobs report, the worst in almost a year, that showed the job market had effectively stopped growing: unemployment remained stuck at 9.1 percent, and the number of non-farm payroll jobs in the country remained unchanged. Republicans have seized on the figures, dubbing Obama “President Zero.”
In a way, the juxtaposition of Obama’s national address and the Republican debate will offer the first glimpse of a potential general election contest between the president and Texas Gov. Rick Perry, by most accounts the new GOP front-runner. Whereas Obama is likely to call for new rounds of public investment in the economy — such as the extension of a payroll tax holiday and unemployment benefits for working and middle-class Americans — Perry has been searing in his criticism of the Obama administration’s first attempt at spurring economic growth, and has promised to veto any new stimulus measures as president. “You won’t have stimulus programs under a Perry presidency,” he said at a recent appearance in Tulsa.
When pressed for details of what a Perry jobs plan might look like, however, the Texas governor said only that he would abide by his conservative “guiding principles,” that the tax burden in his administration would be “light on job creators” and that he would work to unleash the “entrepreneurial spirit” of the American people. Perry’s comments echoed remarks he had made early in his campaign denouncing stimulus spending, declaring in a speech in San Antonio in August, “Government doesn’t create jobs, otherwise the last two and a half years of stimulus would have worked.”
As it turns out, a new report issued just two weeks after Perry’s speech in San Antonio suggests that the stimulus may in fact have helped save or create millions of jobs — and, according to analysts, holds lessons for Obama and policymakers as they seek ways to encourage growth in the struggling jobs market. According to an updated analysis from the non-partisan Congressional Budget Office, the Recovery Act enacted in 2009 by President Obama saved or created as many as 2.9 million jobs in the second quarter of 2011 alone. The $825 billion stimulus program also increased the nation’s Gross Domestic Product by as much as 2.5 percent, and reduced the unemployment rate by up to 1.6 percent.
Of course, that won’t stop Republican presidential contenders from denouncing the stimulus program as a waste of taxpayers’ money and an overreach of federal authority. It’s also cold comfort to the roughly 25 million Americans who remain unable to find full-time work. And as the late economist Dr. Alison Snow Jones, writing under the pseudonym Maxine Udall, pointed out in a trenchant analysis last year, the grim state of the jobs market may in large part be structural, the result of a “misalignment” between workers and employers that may have been festering in our economy for years: “What if the misalignment is so long-standing and has been so destructive to real innovation and productivity that real growth and innovation have been effectively squelched in many sectors?”
Nonetheless, as Jones acknowledged in her analysis, and as many observers of macro-economics have argued, there may be important lessons to learn from the first round of stimulus spending about which measures actually helped to create jobs and which were less effective. The CBO study employs what experts call a “multiplier analysis,” sizing up the relative economic impact of various components of the stimulus bill. And the implications of the report for future job growth, analysts say, are rather clear. “If the entire economics profession, and the political establishment and elite public opinion bought into these numbers, the conversation we’re having would be the end of the story,” Chad Stone, the chief economist at the Center on Budget and Policy Priorities, said in an interview.
The stimulus bill employed a mix of policy solutions, including direct public investment in infrastructure — including so-called “shovel-ready” projects — fiscal aid to beleaguered state governments, tax cuts for both high-earners and middle and working class Americans, and “transfer payments” of food stamps and other types of assistance to the unemployed. According to the CBO analysis, some of those measures were more successful than others.
Direct purchases of goods and services by the federal government, for example, were the most effective at creating jobs, producing as much as 2.5 dollars of economic growth for every dollar spent by the government. Payments to state and local governments for infrastructure projects had the same level of effectiveness, and the “transfer payments” to individuals, the food stamps and unemployment benefits, were almost as effective, producing 2.1 dollars of economic growth for every dollar spent. Fiscal relief for local governments had a multiplier effect of 1.8, and tax cuts for working and middle-class Americans had a multiplier effect of 1.5.
Which measures were less successful? According to the report, a one-year tax cut for higher earners actually produced only 0.6 dollars of economic growth for every dollar spent, and the extension of a tax credit for first-time home buyers produced only 0.8 dollars of economic growth. There’s a lesson here, Stone said, for the next round of political sparring over job creation. “Republicans want to give tax cuts to high-income individuals, and that’s not nearly as effective” as direct spending on infrastructure and aid to state governments, Stone said.
That’s not to say that all tax cuts are created equal, Stone added. The payroll tax cut, which effects mostly middle and working-class Americans, was shown to be much more effective at putting money back into the hands of consumers who, in turn, used that money to stimulate the economy by purchasing goods and services. The same goes for infrastructure spending. Stone’s group is urging Obama and Congressional leaders, for example, to invest in a program of school construction and repairs known as FAST, or Fix America’s Schools Today. “The notion with FAST is there’s a big backlog of school repairs to be done, there’s a lot of unemployed construction workers that might do it,” Stone said. “It seems like a good match.”
Of course, there seems little appetite in Congress and even in the administration for another round of stimulus, given how unpopular deficit spending is with the American public. The debate this week and in the coming months, as a “super-committee” of Congressional leaders meets to enact cuts to government spending as part of the debt ceiling agreement, is likely to focus on more modest measures of public investment, such as the payroll tax cut, which many Republicans oppose, and an extension of unemployment benefits. “There’s still need both for relieving the hardship of unemployed workers and as effective stimulus,” Stone said. “So that’s definitely something that should be done.”
As for the super-committee, Stone and many other analysts agree that the country’s long-term budget outlook is troubling, and that the ballooning government debt over the next 20 years or so, due mostly to rising health care costs, could imperil economic growth. Indeed, the looming debate over jobs is almost certain to include sparring over the deficit as well. The ideal compromise, Stone said, would be a mix of stimulus spending in the short term and cuts to government programs, such as Medicare, in the long term. He acknowledged, though, that such a proposal would be politically untenable. “You would hope for the committee to provide some added deficits in the short run, made up by bigger reductions in the long run,” Stone said. “Now that’s pie in the sky.”